New guidance for businesses on securing bank finance has been released by two leading membership organisations from the business and banking sectors.
The Federation of Small Businesses (FSB) and the British Bankers’ Association (BBA) joined forces as part of Small Business Advice Week 2013, which ran from 2-8 September.
The top five tips are:
1. Develop a robust business plan
This should include projections for growth and should be periodically updated as growth is achieved or market and financial factors change.
2. Build financial understanding
You must be able to demonstrate that you understand your key numbers – e.g. turnover, profits and existing debts – as well as being able to show how the debt will be repaid.
3. Check your track record
Banks will look at the credit history of you and your business in order to see how you’ve managed previous borrowing. Check your history and address any concerns.
4. Be honest
Be clear about how much money you need and why you need it. Underestimating what you need or overestimating your projections may affect the lender’s confidence in your ability to repay.
5. Keep talking
If you get a ‘no’, ask the lender for feedback. They should be able to give you advice about the changes needed to make a ‘yes’ more likely in the future.
The FSB and the BBA urged more businesses to consider using the independent appeals process – agreed by the main high street banks – when a loan application is refused.
John Allan, national chairman of the FSB, said:
“The bank will base their decision on the information supplied to them, so making sure that it is robust is vital. We know that banks turn an application down because they don’t think the business will be able to repay it or because the business hasn’t properly demonstrated how they can repay it.”
The guidance follows the news that lending under the Government’s flagship Funding for Lending Scheme (FLS) increased by £1.6 billion in the second quarter of this year. However, while lending to individuals – mostly via mortgages – increased slightly, FLS borrowing by large businesses ‘remained weak’ and lending to SMEs fell.
John Allan said FSB members were still struggling to secure bank finance and he said it was important that more banks made the ‘cheaper finance [under the FLS] available to more small businesses.’