Looking for finance for your 2016 plan?

Posted by Rachel Flower / December 4th, 2015 / No responses

If you’ve been following our blog you will know that we’ve been encouraging you recently to get working on your business plan for 2016.

And for many SMEs, getting visionary around the business plan also means needing to find creative ways of raising cash in order to fund the grand ideas.

So this week’s blog is from our resident banking law specialist, Kerry Gibbons, answering some of the most common questions we get asked.

Is it a good time?
Yes indeedy. Whilst access to finance remains one of the challenges for many SMEs, our financier friends tell us that now is a great time to face that challenge! The more traditional lenders which were out of the market due to balance sheet issues are making a return and are looking to work with you. Margins are probably at their most competitive since 2008 and there are certainly deals to be had. Indeed,  we are reliably informed that the right business with the right people can even drive a bargain and knock a few percentage points off that best and final offer!

How can I get “lender ready”?
Remember: integrity and honesty are key. It will come as no surprise to you that a lender expects to see a thorough and well thought out business plan. A team that understands their business and presents figures well and efficiently inspires confidence. However, above all else, your business plan must be realistic. So for example, consider a property maintenance company which submits a business plan with turnover doubling in 2016. To include this projection on the basis that “business is good, the phone doesn’t stop ringing” is not a good enough reason. To include this projection because you have just signed a new 2 year contract with a landlord for 250 houses is a good enough justification. If there is an increase in turnover you need a concrete reason why or else your prospective lender will simply not believe you and you will lose credibility at this point. Once you have lost this, it is very hard to get back.

What if I can’t demonstrate growth?
Not all business plans need to demonstrate exponential growth. It is fine for turnover to be flat as long as you can demonstrate that you can pay back the loan.
The key thing is the quality of your business plan and its ability to stand up to scrutiny. A prospective lender cannot lend on your drive and passion alone, the figures must add up.

What else do I need to think about?

Being able to talk knowledgeably and understand your market is critical.
Whilst it is true that your prospective lender may have a certain amount of expertise in the market in which you operate, they will expect to see at least the same depth of knowledge from a potential borrower. You need to demonstrate your understanding of how changes in your market and competition can impact on your business and its potential.
Not only must you demonstrate your understanding of your sector and/or your local area, you also need to show your appreciation of other external and environmental factors. For example, lenders are often amazed just how many prospective borrowers have not considered changes in interest rates. You may be able to afford your loan repayments now but will you be able to next year if interest rates go up x percentage points…how about the year after? The lender will stress your projections against such rises so please ensure that your projections are robust enough.
[Note: This is particularly salient today: the interest rate has been benign for the last 8 years and borrowers are used to this and now, more than ever, won’t necessarily consider what happens as interest rates go up. Show yourself to be savvy and ahead of the game and make sure you do!]

Can I charm and sweet-talk the lender?

Well, it’s certainly true that personality counts. When a prospective lender looks to lend to a business it is also making a decision about whether or not to lend to a person or a team of people. Being a nice guy/gal counts. A lender needs confidence about that person and how they manage their business. One lender told me, “It is 80% number driven, 20% people driven. By that I don’t mean that the management team are good, that falls into the 80%, what I mean is that someone will pick up the phone when I call or else call me back when I leave a message. I need to know I can work with that person”.

Any other tips?

For lenders, good communication is essential. From the beginning a lender needs to believe that the loan is going to be an easy one to manage and that the relationship between the teams is going to be healthy.
Consider the impact of a potential borrower who does not promptly reply to emails, is difficult to arrange meetings with or is dismissive of a lender’s requests. Immediately, the red flags go up and a lender questions, for example, whether or not that borrower will be honest and open and whether or not its reporting requirements will be met.
Whilst the finance market is currently good for borrowers, it is also good for lenders too and a bank will walk away from a deal, even against competition, if the relationship is not right. We have seen this happen on more than one occasion.
Being a happy, open and helpful borrower goes a long way. Lenders are human too and personality is important. So go on, polish that smile!

How can Serenwood help?
The finance market is an interesting place right now. The willingness to lend and the margins make it an attractive time both to seek new finance and to consider new relationships and refinancing to the extent your current bank relationship feels stale. A personal introduction is a great place to start, because often a certain type of lender is looking for a certain type of business. We can put you in touch with the right people and can also help you to ask yourselves the right questions and by getting to know your business better, help make sure you are in good shape and lender ready!

As ever, we love to help your business grow. In the same way as we are loving growing our own.

Kerry
hello@serenwood.co.uk