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BBF’s top tips for lending application success
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Develop a robust business plan - Business plans are more important than ever and you should demonstrate your business’s financials, showing the all-important repayment ability factor. A business plan should give a business owner/director confidence in their decisions, way before it is used to give confidence to a lender. Business plans are all about testing and measuring, helping make informed decisions that are based on fact and sense. In your plan you should demonstrate that you have done your homework, by researching your market and competitors. Identify clear routes to market and highlight in your plan when you expect to start bringing money in.
2 moment. We wanted the survey – called the SME Finance Monitor – to be completely independent, so we commissioned research firm BDRC Continental to interview 5000 businesses from a range of industry sectors and regions. We published the first results (they will publish quarterly) in July, and the next set will be published in November. Key findings include: Not all SMEs use external funding. Half (51%) of SMEs are using external finance, rising to 81% of those with 50-249 employees. Most SME applications for finance are granted. 85% of applications for overdrafts and 66% of applications for loans are successful. Looking ahead, one in five SMEs plan to apply for or renew facilities in the next three months while 63% of SMEs felt no need to apply. It was encouraging to see that most businesses are able to get the credit they need, and that those who have a good track record find the lending application process straightforward. However, the economic climate was flagged as a major concern, affecting businesses choice on whether or not to borrow. The Better Business Finance initiatives, like the mentoring and national events, are designed to give you the help and support you need and the confidence to borrow. * The Business Growth Fund has been set up by Barclays, RBS, HSBC, Lloyds and Standard Chartered. More information is available at www.businessgrowthfund.co.uk
Build your financial understanding – To be successful you must understand your numbers. To have a successful credit application you must be able to clearly demonstrate your understanding and show how the business will manage/maintain the credit it is asking for. You should also be able to clearly outline what you need the money for and how you will pay it back. Read-up or work with a business mentor to ensure you know what makes a sound balance sheet and cash flow projection. A range of resources are available on the Better Business Finance website (www.betterbusinessfinance.co.uk) or you can investigate working with a mentor through our new Mentorsme portal (www.mentorsme.co.uk).
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Check your track record – When making a lending decision, banks will take into consideration how you have managed your finances in the past. It is therefore important that you know your credit rating and understand the key elements that might affect it. This can be done through Experian (www.experian.co.uk). If you believe your credit rating is incorrect or inaccurate you should challenge it.
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Be honest – Do not underestimate how much money you will need. If you need to return to the bank and request further funds, it will be more expensive. It may also affect the lender’s confidence in your ability to manage your company finances. Do not over-forecast revenues or under-value the costs you will incur. Be honest about any reasonable living costs you will need to take out of the business.
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Keep the dialogue open – It is important to communicate often and clearly with your bank and to seek feedback on your lending applications. A ‘no’ now may not mean a ‘no’ in the future. Ask your bank how you could adjust your business model to help secure funding and what elements of your plans may need further consideration. Be sure to check around and compare different banks and their small business offerings. Your bank may be willing to improve its offer if you have other quotes.
www.talkbusinessmagazine.co.uk November 2011
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04/11/2011 15:22