Free advice? Someone offering you great advice with no catches? Sometimes things too good to be true can exist.
Here we give a few pointers when approaching a bank for finance.
Think of it as a Happy New Year gift from the wonderful people at Lime!!
Playing a Game Without Knowing The Rules
Imagine playing a sport without being told the rules, without knowing how long the game is, or what you are supposed to do, then playing against someone who can change the rules when they want?
Doesn’t sound too fair does it?
In essence this is what happens when you apply to a bank. So, stop thinking about it from your perspective and think about what the bank wants.
Ultimately, any bank will judge you on their criteria based on what answers you give. Much of this is the same whichever bank you go to, so give them the right answers, as a guide try the following:
- If asked for a Business Plan, say you have one and update it regularly, therefore you will provide it after the next update. Don’t say you can make one, will do one, or ask if you really have to do one. These answers simply show you don’t have a plan, so if you don’t own a map how do you know where you are?
- Management Accounts. Banks like figures, so make sure you know where your business is, can show where you are, and can show where you make and spend your money. If you don’t know how much petrol is in your car, or where the next garage is then you will run out of fuel and cease to go anywhere.
- Public Information. Before you meet the bank they will have done some basic research, so make sure what they find is in order. If your website is out of date, you have no Linkedin presence, or Facebook shows you drunk in a gutter, then it will not help you out. First impressions still count, but these days they occur before you meet face to face.
Balanced, Fair, Reasonable, Negotiable
Don’t give the bank the answers, give them the information. What we mean is that if you need £200k to buy a property, fit it out, market and promote it, then detail what you want, how much you need and how you can afford it. Then let the bank structure the deal for you.
If you are borrowing £200k, then £150k may be for the property purchase. In which case this could be finance on a 15 year mortgage. The equipment could be on HP, the fit out costs on a shorter term loan as the premises will likely require a further refit in 5/6 years time.
Nobody likes being told what to do, so listen and negotiate, massage your bank manager’s ego and be prepared to give them something they want. If you are the key person in the business then insuring yourself may be requested, it may also be entirely sensible.
Basel is More Than a Town in Switzerland
Basel is the accord by which banks are judged, it measure how much of their cash needs to be set aside when they lend. This means that if they set aside cash they have less to lend to other people, and it costs the bank more.
The basic principles are that an Overdraft requires the most cash to be set aside, followed by unsecured loans. Thinks like mortgages, factoring, sales financing, HP and asset financing cost less.
This is why banks don’t really like overdrafts and would prefer you to use some form of sales finance (aka invoice finance, factoring etc). They will also seek to use HP or asset finance rather than unsecured loans.
You don’t need to understand it in detail, just accept there is a reason why the banks steer you down a certain route, don’t fight it, but be prepared that it will happen and negotiate.
If you are applying for finance, or thinking about it, then come to us first. We are happy to offer some free advice and guidance. In return we trust you will use us in the future. If you receive an offer of finance and are not sure whether it is right for you then pick up the phone and we will talk it through with you.
We always appreciate your comments, so please add them below, contact us via the website or call 0844 682 1462.
See our other blog posts –
Why Profits Are Good, But Cash Really Matters /2013/01/14/cash-cash-cash
Six People Who Can Change Your Business /2013/01/13/the-6-people-i-met-who-changed-my-business
How Your Bank Sees Profitability, Not How You Do /2013/01/13/profitability-and-what-is-it-in-the-eyes-of-a-banker