The Federation of Small Businesses (FSB) and the British Bankers’ Association (BBA) have collaborated during Small Business Advice Week (2–8 September) to give clear advice to small firms on what they need to do to get a loan.
With independent research showing that around three in 10 small firms are refused finance each quarter, the two organisations have joined forces for the first time to give top tips on what businesses need to do to give them a better chance of the bank saying yes to their application.
“The bank will base their decision on the information supplied to them, so making sure that it is robust is vital. Small firms need to give themselves the best possible chance to get finance so they can grow and help sustain the economic recovery”, says John Allan, National Chairman of the Federation of Small Businesses (FSB).
Here are John's top five tips:
A clear business plan is key, not just to get finance but for growing the business too. The plan should be a living document that evolves as the business grows and takes into account changes in the market as well as the financial situation of the business. A well thought-out, comprehensive plan will give the lender confidence in the projections made.
To have a successful credit application the business must be able to show they understand key numbers such as turnover, profits and existing debts as well as being able to show how the debt will be repaid.
When making a lending decision, the banks will look at how previous lending has been managed in the past — so knowing the credit ratings of the business owner as well as the business itself is vital as is having an understanding of what affects it.
Be upfront about how much money the business needs as well as what it is needed for. Underestimating how much is needed may affect the lender's confidence in the owner’s ability to manage company finances, and overestimating profits and revenue could affect the ability to repay.
Communication with the lender and getting feedback is important, as a 'no' now might not mean 'no' in the future. The lender should be able to advise how to change the business model to secure funding and what elements of the business plan could be more robust.
For those businesses still refused there is an independent appeals process which has been agreed by the main UK high street banks.
As John says, “Businesses that are refused finance can appeal the decision. The latest figures show that many firms that do appeal have the decision overturned which is great news. We would encourage more firms to look at the process.”
Irene Graham from the British Bankers’ Association supports John's advice. “If you run a business with a good business plan and want funding, our message is go and talk to your bank. There should be no doubt that now is a good time for businesses to go and see their bank if they want to borrow.
“The UK’s banks are currently offering some of the lowest interest rates in history. We hope these top tips will help businesses to be successful when they apply for finance.
“The independent appeals process is helping the banks to improve the service they give to customers and is also helping to educate businesses about the different finance options available and what they need to do to improve their chances of successfully applying for borrowing."