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Show Me the Money - How to Approach the Bank for Finance

If you need funds for a start-up business or if you want to borrow more for working capital or to expand, then you need to be well prepared before you approach the bank. Something of the order of one in 10 applications for business loans are currently rejected - often because the potential borrower hadn't done their homework. Here's how to maximise your chances of getting finance...

Bone up on the basics

You can't just walk in and ask for money. The bank is going to expect that you have done all your number crunching and bean counting thoroughly before you make your initial approach. That means fireproof business plans and cash flow forecasts.

A good business plan can spell the difference between success and failure for your company, both when starting out in business and as you progress. When creating a business plan, it's a good idea to keep to the essentials so that the document is easily digestible.

If you are a start-up there are loads of courses, books and internet sites which will guide you through the whole process. Try your local Business Link for short courses. Your accountant should also be able to advise. If your bank knows your accountant that should weigh in your favour. However, a good place to start is with the banks themselves. They often produce some excellent free guides and CDs on how to prepare your case.

Think like a banker

Remember their favourite tipple - CAMPARI. It's an acronym bankers use to remind them of the main points they have to consider when sizing up a potential borrower. How do you measure up?

Character - Does your background, financial acumen - personal and business - and personality inspire confidence? Have you the experience and determination to make your plans a reality? This one weighs a lot with lenders.

Ability - Basically, what's the chance of you repaying the bank's money? Can you cope if the going gets tough? The skills and abilities of the owners is key here. Existing and projected profitability, capital requirements and most of all cashflow are also key indicators.

Means - Do you have the means and resources to run the business. Can you provide regular summaries of how the business is doing? What are your assets - personal and business?

Purpose - Why do you need to borrow in the first place? If it's to give yourself a fat cat salary, forget it. Also, a last ditch attempt to stem losses is a non-starter. If it's a plausible start-up, planned expansion or to launch a cash-generating initiative such as a marketing campaign, then you have their attention.

Amount - Ask for enough money, allowing for a margin of error in your forecasts. But don't ask for more than you need, you'll just pay more interest. If you haven't asked for enough and you come back for an emergency fix, the bank will have the drains up to see what's gone wrong. Putting your own money in reduces the lender's risk and shows commitment.

Repayment - Prove that you are able to repay the money with a realistic cash flow forecast.

Insurance - The bank will probably ask for security - which is negotiable - and ask you to consider insurance cover for both your business and yourself - which is prudent.

Check your credit references

If you are applying for a bank loan or start-up finance, banks might well check your credit references to assess whether you are an acceptable risk. You could be refused credit or your credit rating may affect the terms offered. A credit report on your business might include such things as your financial results (for the past five years), how long you take to pay your bills, court judgements, outstanding mortgages, credit recommendations and risk assessments.

Check with your accountant that they haven't made any mistakes. If you are not satisfied with your scoring look at ways of improving your credit worthiness - perhaps by revaluing assets.

Remember it's a two-way street

The bank should be as anxious to get your business (if it's viable) as you are to get funding. Don't necessarily jump into bed with the first willing lender. Compare banks and their offers. Remember you could be in for the long-term so think how the relationship might develop. Are they making a serious attempt to understand your business? Are they offering the best product for your circumstances.

There are a raft of financing options available apart from fixed loans and overdrafts. Have they broached the alternatives? Weigh up their advice carefully. They understand finance but not the minutiae of running your business on a day-to-day basis. As one banker so colourfully put it: "Asking for practical business advice from a banker is like seeking guidance on seduction techniques from a eunuch."

Don't bury your head in the sand

If you run intro trouble and you don't tell the bank, it will cost you more in the long run and you might even lose the business. Delaying telling your bank means the chances of bailing you out get slimmer. Work with the bank to devise a rescue strategy for the business (but work out your own salvage plan first). If things really get rough call the Business Debt Helpline on 0800 197 60 26 for free telephone advice.

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