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How to persuade banks to finance your business

London, UK (17/08/2009)

LONDON (Business Link) Managing business finance and ensuring your business has sufficient funds is challenging at the best of times. In the current economic climate these challenges are even more difficult. The Bank of England's latest “credit conditions survey” showed that demand for both secured and unsecured lending from small businesses declined over the three months to June 2009¹.

Commenting on the figures², George Derbyshire, chief executive of the National Federation of Enterprise Agencies (NFEA), said small businesses may be lacking confidence in approaching banks because of what they have heard in the press.
He added: "These figures demonstrate that perhaps confidence in the financial system is not as high as we'd like it to be. Perhaps if businesses did approach banks they would get a better reception than they anticipated as banks are keen to support small businesses.”
Make yours a winning application
The following 10 steps provide advice for creating an effective and persuasive business case when making a application to banks for finance:
1. Background
Outline background details of your business, such as ownership and management team, history, location and activity of business. Identify your key stakeholders – customers, suppliers, competition.
2. Purpose and vision
Explain the purpose of your application for finance. Provide clear aims and objectives for your business, both short term and long term. You should also record any major achievements by your business, to build the evidence that will convince lenders.
3. Risks
Show that you have considered and understand the risks that affect your business; strategic, financial and operational. For example:
A competitor coming on to the market.
Responding to the introduction of new health and safety legislation.
Non-payment by a customer or increased interest charges on a business loan.
The breakdown or theft of key equipment.
Include the steps your business can take to reduce and mitigate these risks.
4. Financial awareness
Explain who controls the finances in your business, their experience and qualifications. Identify the key financial drivers for your business, including factors such as, where relevant:
Cost of goods
Accounts Receivable Days – how long it takes on average to collect payment from your customers
Accounts Payable Days – how long it takes on average to pay your bills
Inventory Days – average number of days goods remain in inventory before being sold.
This information will demonstrate the robustness of your business's financial model.
5. Accounts
Provide historical financial data, such as three consecutive years' annual accounts. Also, include management figures such as budgets, trend analysis and forecasts to support your business case. Business bank statements should be provided or if your business is a new venture then personal bank statements may help.
6. How much finance do you need?
Supply details of funding required from the bank, including the amount, asset to be funded, and any other funding sources available and/or confirmed. It is important to establish the correct amount to borrow, allowing for unexpected expenses, increased cashflow funding required from growing sales and to draw up a budget to support your business plan.
7. The right finance
Consider all forms of borrowing available in order to best meet the needs of your business. You will need to work with the bank to determine the correct funding structure, eg the balance between working capital (typically funded by overdraft or invoice discounting and factoring) and term borrowing (typically funded by loan, hire purchase or leasing) to ensure the correct mix of structure and flexibility in any package is achieved. You should also consider whether bank finance (ie debt) is your only option or whether your business is more suited to an equity investment.
8. Repayment
Be clear about the source of repayment. Your cashflow and budget forecasts should reflect a realistic view of your business expectations during the period of the facility and identify the sources of income/ cash to meet repayments.
9. Protection
Provide details of security to be offered with supporting papers, such as a property, personal guarantee, a third-party guarantee or Government scheme etc. You may be required to take out insurance to cover accident, sickness or death.
10. Advice
Seek professional advice when constructing your business case, from your accountants, solicitors or trade bodies. You can also seek assistance from your bank and through Business Link.
¹ Bank of England:  Demand for secured lending from small businesses declined with a net percentage balance of 6.7 in March and -16.0 in June, while unsecured demand came down from 2.6 to -26.7 over the same period.
² NFEA press office
To find out more information, visit the Business Link website at: or call them on 0845 600 9 006.

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