Raising bank finance

Brian ColquhounAccess to funding remains a concern for many businesses and when a company is looking to borrow money, the way it presents its case to its bank is the most important factor in whether finance will be secured.

1) Have a robust business plan

You always need to be thinking about what is around the corner, so a first-rate business plan is absolutely essential whether you are starting up or already established. It is your key tool for attracting business funding from a simple overdraft to significant investment.

Top of the list of mistakes businesses make when looking for funding is providing insufficient or irrelevant information. When looking to borrow money, in whatever form that takes, a bank will be interested in certain key points. What are you going to do with the money? How it will help the business grow? How do you intend to repay it? And what other loan or debt commitments does the business have? It is important a business can explain any previous variances from budgets and provide cashflow forecasts to support its case. Figures should be up-to-date with any relevant information included.

2) Be realistic

Anyone who has watched the TV show Dragons' Den will have seen how quickly unrealistic projections unravel – yet businesses regularly make the mistake of being overly optimistic, especially when it comes to putting a value on the business.

While such confidence can be an advantage in business, this is not the case when it results in failing to build in contingencies, which are particularly important during periods of economic uncertainty. Management is often guilty too of unrealistic expectations with dividend policies and being overly generous with the majority of profits being drawn down, leaving little or no reserves in the business.

3) Demonstrate experience

Today, more than ever, banks are looking for evidence of an established business which has worked through troubled times before, has a strong and experienced management team and a business model that has been ‘stress tested’. Also important is financial strength, a good credit rating and management accounts with a consistent track record of profits and a business that is capable of generating cash.

4) Know your market

Again, this boils down to being realistic. If there is a genuine market and demand for your product or service then that bodes well for the business and increases its chances of support. Just as important is showing how you plan to reach potential customers and turn them into paying ones.

As well as understanding its customers, a business needs to understand its customers’ customers and be aware of any potential pitfalls in its supply chain.

5) Be willing to work closely with your bank

Building a strong relationship with your bank will undoubtedly benefit the business. You should be talking to your business banking manager on a regular basis – not just when you get into trouble! They have significant expertise in helping SMEs and can offer valuable insight and help.

At Yorkshire Bank, our network of Financial Solutions Centres mean we have teams of specialist partners, each with considerable local experience, all under one roof and under one management. These specialists include an embedded credit partner able to make decisions locally – and quickly.

Because we are operating at a local level rather than deferring to a centralised head office, we have an expert understanding of the environment our customers are operating in and can work with them to find end-to-end solutions for their business needs.

Brian Colquhoun, North West regional director, Yorkshire Bank.