This article was first published in the July 2012 UK edition of Accounting and Business magazine.
Question: My business is developing well and I now need bank funding to help it grow. How can I maximise the chances that my funding application will succeed?
First, be clear about what you can expect of your bank before, during and after making a finance application. It’s not just about understanding what the bank expects of you.
Many entrepreneurs applying for bank finance already have a relationship with that bank, so their local business manager won’t be a stranger. But whether approaching a business bank for the first time or not, having a face-to-face conversation is a good option. Banks like Barclays will have business managers across the UK who should be ready, willing and able to offer advice from day one of your business – or even from the moment you begin developing a business idea.
That said, you should generally expect your business bank to be able to engage with you in the way you prefer, which may not always be in person. You should be able to receive online and telephone support and services if you wish. You may even be able to organise bank finance this way too. For example, at Barclays, existing customers may be able to arrange smaller, unsecured loans and overdrafts up to £25,000 by talking to a lending specialist over the phone, with no face-to-face meeting required, or applying online.
However you make contact, any reputable bank you approach should be able to give you clear and transparent information on lending rates and all fees and charges associated with different finance products. Not all of these will be charged by the bank, but could include solicitors’ or valuers’ fees, for example, if you are securing a loan against a property*. Your business manager should be able to explain what you can expect to pay and when.
If you are still at the information gathering stage, look out for any free seminars run in your area by banks or other small business service providers. These can give useful information on a wide range of business and finance topics, from business idea generation to marketing, accounting and managing your finances. These kinds of seminars can also provide good opportunities to network and to tap into the ideas of other entrepreneurs.
In the same way that you’d expect certain service qualities and standards from your business bank, the bank typically has expectations of you. Meeting them can help to give your application the best possible chance of success, particularly for larger lending.
First, the business manager will be looking for you to demonstrate a clear vision of what you want to do with your business and, as that vision develops, to capture it in a clear business plan. (See our previous article in the April issue of Accounting and Business for more advice on what makes for a clear plan.) In essence, the business plan needs to cover all the practical aspects of running your business, including resources needed, target markets and marketing strategies, and financial projections. It is always worth having your plan reviewed by someone independent of the business to make sure it stacks up. A professional adviser such as an accountant, or your mentor if you have one, can provide a useful sounding board.
Second, your business manager will prefer to talk to you earlier rather than later. An open dialogue can help establish business goals and growth plans, which will inform the finance structure your business will require as it develops. Note that when you talk to your business manager you don’t already need to know what kind of finance your business requires. The business manager is there to help you with this, identifying suitable options and talking you through the details.
There is no harm, of course, in doing some preparatory independent research. As highlighted in the first article in this series, there are lots of sources of information – and finance – available. It is also worth spending a little time clarifying your requirements: exactly what you want to achieve with the borrowed funds, what you have to offer as security*, how much you are willing to put in yourself, and what interest and repayment levels are affordable each month.
The more prepared you can be, the smoother the funding application process is likely to be. Banks have a duty to ensure they are lending responsibly, so at your finance application meeting your business manager will typically want to talk through your business plan in some detail. Assuming your business concept is sound, he or she will be keen to help your funding application succeed. Business managers will work with you in a constructive way to ensure that your business plan is appropriate
and, if necessary, to help you address any gaps.
As well as talking through your business plan, the business manager should clearly explain all the details of your preferred finance solution. It is important you fully understand the pricing structure, terms and conditions and all other small print – essentially the commitment you are making – before the application goes ahead.
Make sure you tell the business manager about any key timelines for the business and the funding it needs. For example, if there is a key date by which you need funds in place, make sure the business manager knows this and they can give guidance on whether this is achievable.
Once you are comfortable with the details of your preferred finance solution, your business manager could submit your application there and then. Therefore, make sure you take any requested documentation with you to the meeting, such as your passport or other form of proof of identity. The bank should tell you exactly what you will need. Having to drop documents off later unnecessarily slows the application process down. If you are going to need the services of a solicitor or any other professionals, it’s worth lining them up in advance too.
Once your application has been made, look out for further information requests from the business manager. If any queries arise in relation to your application, your business manager will typically help you address them. If for any reason you haven’t heard from the business manager about the progress of your application when you think you should have done, don’t be nervous about getting in touch. The bank’s business manager is there to provide a service to you, so don’t hesitate to make full use of it.
Online advice on business finance
This article is just part of a new partnership between ACCA and Barclays,
which is helping SMEs to grow
The initiative extends to a jointly branded area of ACCA’s website providing advice to accountants in practice and SMEs on obtaining business finance. Written by experts from both Barclays and ACCA, the site:
- looks at the different types of finance available
- explores what to consider when choosing which one is the right option for their business
- explains how different types of loans are structured
- provides guidance on making that all-important loan application.
There are also examples on the site of business plans and cashflows to help put together an effective loan application.
* Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage.