Borrowing & Business Plans
A few years ago any application from your company to the bank involved preparing a business plan, detailing what was needed, clarifying your aims, risks and pretty much everything that the bank needed to know.
Since then times have changed. Whilst a business plan is essential with equity funding, for general business borrowing it is much less important than you may think. I will even let you into a secret, most lenders don’t even read your business plan. I have a belief that somewhere there is a huge store of pristine condition, unread and untouched business plans.
Why? Because the more you automate the lending underwriting process the less need there is for non-statistical data.
Think about it. There is a lower level of experience on the front line in business banks, there are less judgemental decisions being made, so even if your business plan was to be read do you really think the person reading it would understand what you are explaining?
I am being a tad flippant but the facts stand up. I am not suggesting you don’t have a business plan, your business needs a plan for you to work with just not a new one for each time you want to borrow.
So what does the lender look at?
Most borrowers will provide the financial information, forecasts and everything else with numbers on it. The lender will ask for copy bank statements and the borrower provides these without a second thought.
Your business bank statements are the first port of call, and the first reason the lender has to say no. Statements are asked for as the conduct of your current account is considered a good barometer of how well you run your finances and, ergo, how well you will make the loan repayments. Too many companies don’t consider getting their statements in order before applying, get a few months of good conduct, within the overdraft limit, no returns etc.
Purpose of Loan
As simple as that. A business could apply for a loan to purchase a property which they are going to let out. Maybe the company want to acquire premises that they may use themselves in a few years time, in the meantime they will let the office out. By not occupying the property immediately some lenders will decline because they will lend mortgage money for buying a commercial unit for your own use, but not as an investment.
What is the difference? Not much. There are some issues around liquidity to the lender, but that is not one for the borrower to be concerned with.
If you applied for your ‘own use’ then decided to let it out afterwards, then hey! It would be approved. It is the small things that make a difference.
This is the big unknown to the borrower. The lender’s policy. There is only one way to know what a lender’s policy on lending to you is. Sadly, if you ask then you may not get the answer, the only way to know is ask us as we get this information given to us by lenders.
Policy determines which sector, amount, purpose and term the lender will lend over. Regardless of anything else, if you are outside of policy then you will likely fail to raise the commercial finance you wanted.
There Is A Solution
So that’s business plans dealt with and a few secrets disclosed. The thing to remember is that regardless of what your statements and accounts look like, regardless of what you want to purchase and for what purpose there will be some solution for you. It just may not be somewhere you know where to look.
By Dave Farmer