Applying for bank loans and overdrafts;for those of you looking to start a business, expand and or secure more investment, this is a simple guide.
What you can borrow depends on your business , are you a start up, 1-3 years , established , growing or not.
The simple principle is all loans / overdraft’s are tied to security [ house/ business assets/ cash generation]
- You should expect to offer security; this may well be in addition to your start-up capital
- Expect an initial conversation to be 2-3 hours ; take a business plan, 2 forms of ID and proof of incorporation [if appropriate] ; landlords lease and/ or ownership of premises evidence
- Expect circa 1:1 relationship to the amount you wish to borrow.You have profit of £10k pa , expect £10k overdraft and loan combined facility [conservative]
- For new businesses with only a few years trading , your “debt level” may by as low as 1 or 1.5 times and often with a guarantee secured on your own home/assets
- For businesses showing rapid growth and consistent revenues [by this I mean contracted / recurring] you may be able to get 3 to 5 times for cash profit if…..
- You can evidence recurring / contracted revenue/ high levels of repeat business [and visibility of that ]
- You may be able to get cash profit multiples and or decreased personal guarantee’s [ an indication of reduced lending risk] where cash generation is predictable
- Small and new businesses pay higher interest rates and charges than their larger corporate counterparts
- This is about risk
- Minimum costs of managing your account
- The implied cost of relationship management by the bank
- It might not be fair but it’s a reality
- Larger businesses with established revenue and profit can negotiate fees/interest rates and multiples .. mainly because you can go elsewhere as a customer
- And al the above takes time – allow at least 8 weeks from your first meeting – if it’s faster than that you have done really well
- Some banks offer free banking to business: The SMALL PRINT , often you have to be pre revenue / start-up
- It may be easier to go with the bank you use personally at the start , ask them first
- If it’s a change your looking for; changing banks as a business isn’t like changing banks as an individual – moving all the payment processes across such as DD/debit and credit card payments [for sales] will be down to youAll of the above is quite different when we get to large loans, bonds and the like but that’s not for here .
If you need help with the process, an introduction to a bank or review of your business plan, send me an e-mail.. meanwhile , a crib sheet to work through ….
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