The Barriers To Raising Finance
One of the most common enquiries I receive are following the client being declined a loan or other finance facility, the reaction of the client when being declined is normally one of surprise.
Surprise means the client was not expecting the answer, so what are the most common barriers to raising finance?
1 – Don’t Believe The Messenger
Earlier this week a client told me that her bank had agreed to lend her £100k. Good news. When I asked to see the loan offer she said that her bank manager was ‘just waiting for the sign off’. Alarm bells ringing. The big issue with most high street banks is that the front-line managers want to do business, their keenness (and often naivety) leads to the client having higher expectations and a great level of disappointment.
There are key questions to ask your bank manager, one of the most important is to ensure when you think something is agreed that it definitely is. Make sure you know the limitations and authority of the person you are dealing with.
2 – Why Wait Until You Need Funding
A common response from lenders when they cannot agree a loan application is to ask the client to reapply in 3, 6 or 12 months time.
This always begs the question of what would have happened had you looked to borrow before you needed it and could therefore do the things needed before you apply.
Most businesses will still wait until they need money before they seek borrowing. If you could move the clock forward, plan and forecast when you need finance then the need to reapply may never occur.
Lenders will ask the borrower to reapply because the thing preventing them from lending can be overcome, or is a current issue they want the borrower to successfully move past. To better plan ahead consider these 3 points;
- What do your bank statements look like? Many lenders look at bank statements to see how your turnover is moving, whether the account is running within it’s limit. Look at your bank account 3 months before you need the finance, make sure you run the account well in the period leading to raising finance even if it means structuring payments going out or chasing money coming in.
- File your returns on time. Late filing of standard returns at Companies House act against you. Get you VAT filed on time, get your annual returns filed on time, get your accounts submitted ahead of deadline day
- Think about your financial year end. It is common to see lenders ask for the latest year end accounts to be filed before they will release money to you. If you know your year end is coming up and will occur before you want funding then think whether you would be better filing the accounts slightly earlier than last year. When doing this make sure you have your P&L up to date so your financial records are all in good order
Other Borrowing Tips
If you get the basics lined up then you should be in with a chance of getting the borrowing you want. There are loads of great little tips to make things easier, if you want to know which of those apply to you then please get in touch and I can talk you through it.
Any comments about this article? Please add them above or contact Lime Consultancy direct.
By Dave Farmer