Banks want to lend you money: it is a vital part of their business, but, of course, they want to be certain that your business is a suitable one with which to be involved. It is worth doing a little research before approaching a bank. Do not just go to your local branch because it is the nearest. Banks tend to specialize in different areas; find out from people in a similar business which banks are likely to look favourably on your business.
For example, if you are setting up a business in the entertainment industry, you might stand the chance of getting a more sympathetic hearing if you took your Business Plan for producing a series of promotional videos to a bank in the West End of London rather than one in the West Country. The London bank would be more used to dealing with that type of business, and would appreciate the nature of the risks involved. A preliminary chat to see whether a bank is prepared to lend money to you at all is a good idea, and may save you time. If the answer is definitely ‘No’, you know where you stand. When you have obtained your appointment, make sure you have everything ready. You need a well-presented Business Plan and Cash Flow Forecast.
Draw up a detailed list of:
- what you want the money for
- how you intend to pay it back
Remember to include the interest on the loan in your calculations.
It is better to ask for a long-term loan, so try to get as long a pay-back period as you can. It is always possible to pay back a loan early, but not always so easy to extend the loan if your business is not doing as well as you hoped.
Try to anticipate the questions you are likely to be asked. It would probably be sensible to arrange for your accountant to attend with you. In any case try to have a ‘dry run’ where you can state the main facts of your case and reassure yourself that you can do this with confidence.
Other sources of funding
Banks are not the only lenders of money, but a bank is a good start for up to £50,000. Above that figure you could consider a building society, an insurance company or a merchant bank. You could also consider topping up your mortgage to introduce capital into your business. Ask your accountant to advise you on sources of funding, where to go for the best deal and how best to present your request for a loan.
Many small businesses do not fully understand the role that business planning can play in helping them to develop their business and maximize their resources. Many mistakenly believe that a Business Plan is just an aid to secure finance, rather than an essential business practice which can increase the overall efficiency of a business.
