In 2014 Business Loan Services’ Rob Warlow chatted with many business experts as part of the weekly Business Finance Bulletin. In this second compilation edition of the Business Finance Bulletin 2014 interviews you will hear from the CEOs of two crowdlending providers, Graeme Marshall of Funding Knight and Parag Patel of Funding Empire, talking about how crowdlending works. Sourcing finance from the crowd exploded in 2014 and it’s fast becoming a recognised alternative to traditional bank funding.

During the past 12 months the Business Loan Services have seen increasing interest from business owners looking to sell equity to raise funds. But what are investors looking for? To answer this question Rob chatted with Alister Betts of Lucid Ventures which specialises in seeking out equity partners.

Late payment is a continual problem for small businesses and Steve White from Thornbury Collections shares three quick tips on what you can do to avoid getting caught in the late payment trap.

And lastly a chat with Kevin Peake from Pension-Led Funding on how you can unlock the value in your pension to fund your growth plans.

During 2014 BLS’s Rob Warlow has had the pleasure to chat to a number of business experts for our weekly Business Finance Bulletin.

In this first of two compilations of these interviews you will hear about the importance of managing your reputation with Alan Stevens; thoughts on key actions you can take to successfully grow a business from Robert Craven; Derek Arden on how to negotiate a better deal with your bank; and finally thoughts from Tim Luscombe on why you should keep accurate management information.

Keep an eye out for the second compilation which focuses on alternative sources of finance.

When we are raising finance for businesses one common stumbling block is the delay in getting all the required financial information together. From the annual Accounts to Management Accounts, the financial aspect of a business is a blind spot for many business owners.

A recent survey carried out by You Gov found that 62% of business owners found running a business a ‘constant challenge’. One thing many business owners find difficult is to let go of tasks they find tedious or time consuming. This inability or unwillingness to delegate comes down to mindset and in this survey 37% said they struggled leaving employees in control.

One of the many tasks business owners try to tackle is financial control; 25% of those surveyed said they have problems with this aspect of their business. Furthermore 22% said they spend over 10 hours per month on ‘behind-the-scenes’ admin work.

All of this leads to one major downside… 73% say that they can’t set time aside to plan ways to grow their business. Think of the missed opportunities.

So the solution is to outsource those tasks you hate. There are plenty of people out there who can take these tasks away from you. When it comes to preparing Management Accounts, doing the VAT and chasing outstanding invoices get a bookkeeper in to do this for you.

It’s all about freeing up your time so you can concentrate on what’s important to you. An added bonus of course is that when a deal of a life time lands on your desk you have all the financial information ready to go which makes our job in getting you finance that much easier.

A win-win!

Poor cashflow is a constant headache for most business owners. In my conversations with business owners a common theme emerging is the day-to-day struggle of chasing outstanding payments and juggling creditors who themselves are pressing for payment.

Whilst you may be doing everything you can to encourage debtors to pay what do you do if your creditors are putting equal if not more pressure on you to pay up and your bank won’t help?

Here are four steps you can take.

Step 1: Assess Where You Are Now

If the pressure is on there is a high probability you have lost sight of the extent of your problem. When you are constantly bombarded with phone calls and letters it’s too easy to ignore the situation in the hope it will go away. But this is not the time to bury your head in the sand.

Part of the key to successful cashflow management is knowing exactly where you stand. Forewarned is forearmed.

So your first task is to write down precisely how much you owe and to whom. If your bookkeeping system is set up around stacking invoices in the corner of your office, or leaving them languishing in your email in-box, access them out and list them one by one with names, amounts and dates due.

Acknowledging and accepting the extent of the problem is an essential first step.

Step Two: Prioritise Your Payments

Having written a list of payments due the next step is to prioritise them. In prioritising the list you are aiming to classify them into three categories:

1. Business critical payments which have to be made under any circumstances. These are payments which would put your business at risk if not processed

2. Creditors who would be content with a part payment

3. Non-critical creditors who could wait and not cause you major disruption if not paid

Step Three: Communicate, Communicate, Communicate

In times of a cash-crunch it’s too easy to ignore the situation you’re in but in not communicating you will only compound the problem. Now you have your list the next step is to get in touch and inform each of them as to what is happening and to communicate your message or request.

Put yourself in your creditor’s shoes; what would you think if you were expecting payments by a certain date and had planned your cashflow position accordingly but no payment was received? Not impressed I guess. So why should it be any different if you are the one delaying payment?

By communicating your intentions you will be preserving and in some instances potentially strengthening relationships with your suppliers.

Step Four: Check Your Cash Position Daily

Now you know where you stand you can move ahead more confidently. From now on it’s all about monitoring the cash position in your bank account on a daily basis. You are checking to see who has paid you, what cheques have cleared and, referring to your payment schedule, which creditors you can pay as per the agreements you have made.

Once you have made a payment, follow step three and communicate … call to tell them their payment is on its way.

Continued communication is the key.

Follow these steps and you will be in a better position to handle any cashflow crisis you may be experiencing.

In this clip taken from a live seminar Rob Warlow talks about the history of crowdfunding, and how the credit crunch led to the launch of crowdfunding sites.

From raising finance via equity to business loans crowdfunding is a growing alternative to the banks.

One aspect of a bank’s credit assessment process in reviewing your business loan request is how you are going to use the money lent to you. BLS’s Rob Warlow shares three key things you need to be aware of in how the bank will review your business loan application.

The struggles businesses have when it comes to getting a business loan are well known for even well established businesses. But what if you are a start-up or a relatively young business? Simply put the climb you face will be steeper than the one confronting your more mature counterparts.

So what factors do banks take into consideration when assessing a business loan request?

If you are a start-up or a relatively young business you can increase your chances of success by better understanding how banks will assess your finance request. In fact businesses of all ages would also benefit from this.

One framework which sums up their approach is CAMPARI; get a tick for each aspect of this framework and you’re on the right track.

Character

First of all you need to understand that in the SME world the bank is lending to you, not your business… you are the business. It is you that can make or break your business and so naturally the bank is going to pay close attention to your character.

The bank will consider your age and health; the assets you have; how you have operated your bank account; and whether you come across as a person of integrity and honesty.

The key factor though will be the information contained in your Credit file. Do you have a clean record, or do you have a list of past loan defaults? For lower value loans the results from a credit search can be the main factor in you getting a yes or a no.

Ability

Closely linked to your character is your ability to make a success of the business. In terms of the sector you’re operating in do you have relevant experience? Do you have suitable qualifications which benefit you in this business?

What specific business skills do you have which will help control and grow the business? If you are missing key skill sets, what are you doing to close the gap? Do you have a clear plan for what you want to achieve?

All of these factors will help in assessing your ability to deliver on what you are promising.

Margin

This next part of the CAMPARI framework is not the definition of margin you will be familiar with. This is the amount of margin the bank will be charging you i.e. the interest rate and other charges they will apply.

The question for the bank is whether the interest rate and fees proposed is sufficiently high enough to compensate them for the risk they are taking.

Purpose

The bank will want to make sure that the purpose to which the finance will be used adds value to the business; the money lent has to assist you in moving the business forward and not just to get you out of trouble by paying off pressing bills for example.

The bank will also consider the sector you are operating in. Banks have sectors they are happy to lend to and sectors in which they are more cautious. The less favoured the sector, the tougher it will be to get what you want.

Amount

The bank does not expect to be advancing the total cost of the project; you will be expected to make a contribution. So what percentage are you putting in?

In terms of the project, are you asking for too little or too much? Either of these will put the bank off. The acid test is whether the amount you’re requesting matches with what your financial projections are showing.

Repayment

At the very heart of the bank’s assessment process is your ability to repay the finance you’re requesting. The bank will be looking at your Annual Accounts, your Management figures and your financial projections (Profit and Loss, Cashflow and Balance Sheet), all to confirm you can afford the repayments.

What about your past repayment track record? Have you had previous borrowings which were either paid back with no problems or where you struggled to pay? All of this is taken into consideration when assessing your ability to pay back.

Insurance

And lastly the bank is going to look at its insurance in terms of the security you can offer for the bank to fall back on should you fail to repay.

The issue of security is a very emotive subject. If you are looking to borrow a relatively small sum then the issue of security won’t arise as the bank will lend purely against your past credit history. However, for larger amounts the bank will be looking for assets which it can sell should you fail to pay.

The Next Step

As you can see there are a number of elements that the bank will look at when assessing your finance request. How do you stack up against the CAMPARI framework?

What actions do you need to take to improve your chances of getting a ‘yes’?

When it comes to raising business finance one of the first things your bank is going to ask for is your Business Plan.

But what do you include in a Business Plan? How long should it be? How much detail do you go in to?

Writing a Business Plan is a task that can eat in to the precious little time you have to run your business.

Which is why we have written a free 100+ page ebook entitled ‘The Secrets of Writing a Killer Business Plan’.

Enclosed within the pages of this free ebook is a step-by-step guide on what a Business Plan is, an outline of what to include in the ideal Business Plan, and how to present it to your bank.

To request a copy of ‘The Secrets of Writing a Killer Business Plan’simply complete the box below.

If you have any problems please email us via the Contact box at the foot of this page.

In this clip from a live seminar hosted in Amsterdam Rob Warlow talks about how the current climate in raising finance is the new normal… we have to accept that raising finance will be a challenge for quite a while. With this in mind Rob explains how we have to adapt and why having an understanding of finance and a financial skill set is so important.

Getting a business loan is not as easy as it once was. During the ‘boom’ times you could get a business loan based on a few pages of information. Not today. If you are approaching your bank for finance you have to be prepared for a long list of demands.

We all know the 5 P’s when it comes to preparing for a big event – ‘preparation prevents particularly poor performance’ – and when it comes to approaching your bank for a business loan, this has never been truer.

To help them in assessing whether you are a good risk banks are coming up with an ever growing shopping list of required information.

To help you stay one step ahead of the game in getting a business loan here’s a list of what you can do in advance of putting your request in.

Prepare a Business Plan

Whilst you may think a face-to-face interview will be enough for the bank to understand you and your business, it’s not the case. You can’t take the risk of the bank not ‘getting’ your business. Writing a Business Plan takes away that risk; you’re in control of the message you want to get across.

A Plan does not have to be complicated. Here is a simple four-part outline:

• Where your business has come from and your background
• Where your business is today
• Where you want it to be
• How you are going to get there

Before you approach your bank with your business loan application, commit time and resources to writing a Business Plan; it may be less painful than you think and it will certainly give you a head start.

Bring Your Financials Up to Date

Your annual Financial Statements may not mean much to you but for the bank your numbers are the foundation of their assessment process.

If you have been lax in keeping your financials up to date speak to your accountant today. Your bank is not going to move an inch until it has a set of Accounts on the desk.

Prepare Your Latest Trading Figures

So you have your Financial Statements produced within three months of your year-end and the bank is happy? No! A few months is a long time in business and the bank will want up to date trading details in the form of Management Accounts. These are a mini version of your annual figures but more up to date – ideally to the end of the previous month.

In the current climate you should be preparing regular performance figures to assist in tracking areas for improvement as a matter of course. If you’re not, start today so when it comes to speaking to the bank you’re fully prepared.

Get Your Financial Projections Ready

Whilst the Business Plan sets out your vision in words the financial projections set out your future in numbers.

You will need a minimum of two years projections to include a forecast Profit and Loss, Balance Sheet and Cash Flow.

There are three reasons for the bank requiring projections:

• To be convinced that your business can service the level of debt you are requesting
• To monitor actual results achieved against the numbers projected with any deviation, acting as a warning sign
• To force you to think through your project in terms of numbers in order to take away the emotional element

Don’t shy away from this important task; you need to demonstrate to the bank that you are comfortable with the numbers aspect of your business.

Prepare a Personal Financial Summary

Banks will take greater interest in your personal financial position. In these tough times savings have been depleted, and credit cards maxed out to keep the cash flowing. The bank will want to know how your personal financial position looks.

Start by preparing an Income and Expenditure Report which lists your monthly household ingoing’s and outgoings. This is then backed up by an Asset and Liabilities Statement which summarises your assets – house, car, and savings – and your liabilities – mortgage, car loan, personal loan, and credit card.

But That May Not Be It …

This list is not exhaustive. Each business loan request and business is unique so the information asked of you will be tailored accordingly. Banks continue to be mindful of the risks they are taking on and one way to mitigate this is to obtain as much information as possible.

If you prepare your business loan application well in advance you can save a lot of time and stress so start your preparation now.

For regular updates on how to finance your growth plans, subscribe to our free weekly Business Finance Bulletin.