How to get bank loans
Take a very close look at the amount of money you think
you will need. Know exactly how much money you need to raise, as you have to be
able to justify every penny to a lender. Approaching a bank with the attitude of
‘how much can you give me?’ will not inspire confidence.
Define your income streams
According to Nigel Lander, a specialist finance adviser
for Business Link, raising finance for start-ups or early-stage businesses is
very difficult. One way that will increase your chances is to prove that your
business has clearly-defined income streams. If you show that your business will
have money coming in, it will be easier to persuade the banks to provide
finance.
“Bank finance is essentially for lending against
anticipated income streams. For a very early-stage business, banks might come up
with a small amount of money to match what the owner is putting in, on a pound
for pound basis. Make it work at a modest level,” advises Lander.
If you have very little or nothing to put into the
business, it will be extremely difficult to convince the bank to part with
money. To heighten your chances, try and raise money from as many other
resources as possible, such as your friends and family, any retained profits you
may have, or a third party investor. Banks want to see commitment from the
business owner’s end, so you will probably have to come up with some kind of
security as a form of guarantee, such as your house.
A watertight business plan
When approaching a bank, your business plan and how you
deliver it should be the best it can possibly be. The Lloyds TSB Small Business
Guidecontains tips and advice on writing a business
plan. If your bank manager is your best possibility and you have not practised your presentation, you might blow your chance of
accessing finance. You could try approaching a different bank to do a ‘test
run’.
“Many applications for finance get turned down because
they are badly written or presented, and many get turned down because they are
presented to the wrong people,” says Lander.
According to Guy Herrington, marketing director for
business banking at Lloyds TSB, a well-prepared business plan is essential when
approaching a bank, and many banks have packages to help you write and prepare
your business plan.
“Banks decide to finance businesses on a case by case
basis really. Less than 40% of customers actually borrow money when they are in
the early stages of their business. Most will use funds from trade creditors or
their family,” says Herrington.
Prove your management ability
Another factor affecting whether a bank will agree to
finance your business is your track record and management ability. Can you make
the business work, and do you have a background in the sector are questions you
should ask yourself.
“The quality of the management team is always a major
consideration. To help you, make sure you have support from a third party who
has experience in areas where yours may be lacking,” suggests Lander.
Lloyds TSB’s Herrington says
that it can be useful if you have a track record, but it is also worth
highlighting any other relevant skills that you can bring to the business.
The bank’s view
At the end of the day, banks never finance anything on a
100% basis, otherwise they may as well be running the
business themselves. They will always be looking to finance businesses on a
partnership basis, and will always want a contribution in, for example, monetary
terms from people running the business.
Remember also that each branch manager has a different
discretionary lending limit; above the limit your application may need to be
processed elsewhere, which means you could lose part of the ‘personal’ touch.
The moral is to shop around, and certainly do not be put off by being turned
down.