Unless you are extremely fortunate, at some point on the journey of growing your business you’ll require some form of finance for growth. It is important that you ensure your business plan has real depth, clearly demonstrating that you know your business better than anyone. If this is new to you because it is a start-up, ensure your research and attention to detail is second to none.
Ideally for a start-up, funders want to see you have the relevant experience to achieve your plan. If in any doubt, seek expert advice from accountants and business advisors. Preparation and planning cannot be underestimated as this can make the difference between success and failure. There is also a massive difference when funding a start-up compared with an established business requiring funding for growth.
If you are an established business, I would also point out that sometimes when not necessarily requiring funding, you test your bank’s appetite to lend. If you have a good business and the bank shows no desire to fund then I would be looking to find a bank that is interested. It is critical that your bank is with you all the way as this can make a massive difference to the success of your business. I have seen banks pull funding lines, in some cases for no reason, that has resulted in catastrophic outcomes. This would be avoided if you have a very close relationship with your bank so they feel confident that you are running a tight ship.
When obtaining finance you can either broker the deal yourself or use corporate financiers or accountants. The choice is yours but you must feel comfortable. I have brokered deals to a certain level, but once they get to £1m+ I would suggest you seek expert help.
If you are looking for a large funding line, I would submit your detailed business plan to all of the big banks: HSBC, Barclays, Natwest, Lloyds, and Santander. Also consider any specialist funding providers if your requirement is something that may be suited to them. When financing for growth, the banks will generally lend on a multiple of EBITDA x 2 or 3.
You should then get a relatively quick response letting you know if it is something they are willing to consider. Then it is likely that the proposal will require several line managers to sign off, so this may take a while, but it is all part of the process you need to go through.
Once the banks start coming back to you, there will be an array of different offers and terms. They may offer full or reduced amounts. Ensure you scrutinise the terms with your advisors and go for the best deal for your business.
The type of funding options may also differ. They may be through a business development loan or overdraft or combination of both. Usually commonsense prevails and will depend on what the funding is to be used for. If say, for example, it is for plant machinery and cash flow growth, they would probably do a Business Development loan on the plant machinery and overdraft on the remainder.
One thing is for certain. You need to make sure that you have covered all the details. Believe without reasonable doubt that this proposal will work. I know this is obvious, but your bank manager will look in your eyes and want to feel very comfortable that this plan will be delivered.
Having built and sold my SME, I now work with SMEs. I understand their model by embedding myself in the senior management team so I feel the heartbeat of the business. All areas are covered, but the four questions that we work on solving are: How do I grow my business?, How do I achieve client excellence?, How do I make more profit?, and Does my business model deliver?
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