Crash course in: Getting bank finance

Times may still be uncertain, but businesses still need to invest. The banks, though, seem intent on battening down the hatches. What can you do to stack the odds in your favour?

by Alexander Garrett
Last Updated: 09 Oct 2013

Pour yourself a Campari. It's actually the mnemonic - character, ability, margin, purpose, amount, repayment, insurance - by which banks assess lending proposals. So measure your company against each of these factors.

Shop around. 'One bank manager may turn you down, while another in the next bank or even the next branch may not,' says Russell Snowdon of Independent Banking Consultants. 'Speaking to more than one lender increases your chance of success and also lets you compare terms.' Look at other sources of finance but, remember, the commercial intermediaries market is unregulated, so choose your adviser carefully.

Be ready to haggle. 'Terms are nearly always negotiable,' says Snowdon. 'It's possible to improve price, security, the amount available and the covenants and conditions of the loan.'

Don't under-borrow. It's better to borrow the amount you really need than to come back in a few months asking for more. Doing the latter suggests you may not have a grip on where the business is going, says British Bankers' Association spokesman Brian Capon.

Take some of the pain. Banks know personal guarantees can't always be enforced, but they like you to show commitment, such as by putting in some of your own money.

Manage your bank manager. 'Put yourself in their shoes,' says Mark Blayney of finance adviser Debt Boutique. 'If they need quarterly management accounts, provide them.'

Share bad news. 'Banks don't like surprises,' says Capon. 'If you tell them bad news early on they will think you're responsible; if you can also tell them how you'll work round it, they'll be even more impressed.' Anyway, if your trading is down, they'll be able to see it in your account balance.

Less is more. Offering the bank too much information can be counter-productive, since it takes up time the bank manager may not have, says Snowdon. 'It's better to present the need, some solutions that would meet that need and the financial data to support that decision-making,' he says.

Deliver on your promises. Most commercial bank lending has covenants attached and you should think carefully before signing. Sanctions can be severe: overdrafts are repayable on demand. But a more serious issue is maintaining credibility that you are in control of the business.

Do say: 'Here's our comprehensive business plan, up-to-date financial forecast and details of how we will service this commitment.'

Don't say: 'Can we stick another £50k on the overdraft until we get back into profit?'

Finance Misc

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