A few weeks ago I attended a seminar on getting finance at GLE , which is a private company delivering some public sector programmes, including training to small businesses.
I was interested to go for two reasons. Firstly the topic is of interest. The world of finance has been turned upside down in the last 3 years and I wanted to know what the lay of the land is now. Also I am on the look out for resources for small businesses. I had found out about GLE which delivers programmes to support small businesses and wanted to see whether to recommend them to my clients.
The official title of the seminar was ‘Finance Ready Business Planning’ and the intention was to let business owners know all their options in where to get finance and what to think about in advance of putting together an application or request for finance.
Let me say straight away that the seminar was excellent. It was delivered by an ex-banker, Ash Patel, who had previously assessed applications for finance and I felt it was pretty comprehensive and thorough. For anyone seriously looking for finance, especially if you are considering making an application to a bank, I would recommend booking onto a seminar (I am told more will be scheduled in 2012 at GLE). I can also pass on the slides from the seminar if anyone is interested – just send me an email.
I won’t go into the whole seminar which was too long to cover in one blog. There was good advice on planning cash flow and timescales but there were two aspects that I feel are worth passing on.
1. Sources of finance. It is easy to forget that there quite a few options available. It was good to get a comprehensive list down of the types of finance available which are as follows:
- Bank finance – this could be a loan, an overdraft, a credit card or a commercial mortgage. With regards loans I was interested to find out whether the banks are still lending. I have heard more than a few reports in the media that business owners are finding getting finance very hard. The response was that banks are lending but that the criteria are much harder to meet now. In the days of easy finance, most applications would go through, now banks are much more cautious. It is not that they do not want to lend, just that they want to have a lot more security about their loan and only around 20% of applications are now successful.
- Non-bank finance – a number of organisations exist with provide finance to businesses in order to support the sector. In the past GLE was one of these and generally since these tended to be based on government and charity initiatives, this kind of loan is suffering due to the cuts. However others are still lending and include: North London Enterprise Fund; HBV Enterprise; Prince’s Trust (for under 30s).
- Asset Finance – often the manufacturer of an asset (machinery, IT etc) will be able to offer finance to cover the purchase of the asset in much the same way as a car dealership will loan you the money to buy a car.
- Cash-flow finance – by offering terms to your clients to pay early, you can effectively bring extra finance to your business.
- Government EFG scheme – not strictly finance, this scheme is designed to make it easier for small businesses to access bank finance. Sometimes a bank will only lend if the business can provide security in the form of assets. Where a business cannot provide this security, a bank may refer the business to the scheme which may guarantee the loan and thus facilitate finance that the bank would not normally provide.
- Equity Finance – finance from business angels, venture capitalists and private investors.
One relatively new source of finance that didn’t get mentioned at the seminar which is Crowd Funding. Here the idea is that through the internet, many individuals can pool relatively small amounts of money to lend to small business. Two websites offering this service are: the Funding Circle and Crowd Cube.
2. What the banks are looking for.
- Firstly it makes a big difference if you are looking for more than £10-15k. Most banks have a fairly short and standardised application process for loans of less than £15k. Above that figure and a much more rigorous and involved process comes into effect.
- Not surprisingly the banks want a business plan, including summary, background to the business, description of operations, product and services, your aims and purpose for the loan, strategy, market place, marketing plan and financials (cash flow forecast and projected profit and loss). They are not looking for a huge plan. 3 to 4 pages is standard.
- They want past year’s accounts – typically 2 years.
- They want information on your customers
- Assets / Security – having assets to guarantee the loan is obviously important to a bank considering risking their money.
- Personal financial position, assets, income etc – often a bank will want to look at your personal financial position and to secure the loan against personal assets.
- Business and personal bank statements to back up the information given.
- A clean credit record
More generally the banks are looking for the following qualitites in the businesses they lend to.
- A trustworthy business owner displaying the necessary drive and experience to deliver their plan.
- A good reason for borrowing the money
- A good prospect of the business making a success of the investment
- Assets to secure the loan against incase the investment is not successful
As I said, the full slides from the seminar are available (with GLE’s permission). Just email me and I will pass them on. It would be really interesting to get comments from anyone who has had experience of applying for and / or getting finance.