by David Smy - Partner on 21 June 2012
The announcement from the government to release billions of pounds of cheap credit to banks to lend to companies may give rise to an avalanche of loan applications. But how successful are applicants likely to be?
This will, of course, depend upon many different factors, but it is often the case that the expectations of those applying are totally unrealistic. Despite these additionally available funds trying to stimulate the economy, one must remember that the banks are also a business needing to make a profit. Furthermore, they have borne the brunt of the burden when it comes to blame for the current situation and it is therefore not going to be in their interest to be frivolous with current lending.
A well thought out business plan incorporating a predicted cashflow is a useful tool to demonstrate that you have a good idea of what you want and why you want it, as well as demonstrating that you understand the numbers. Whilst you are best placed to do the groundwork, it can be advisable to get a second opinion before going to the bank, just in case you have overlooked some particular aspect.
Unfortunately some people think that the bank will fund all of the business’ needs, but this is rarely the case. Looking to borrow no more than 50% of your needs from the bank is a good starting point, since this demonstrates your commitment to the business.
Many companies have been looking closely at where they can make savings and not spending unless it is absolutely necessary. However, with cheaper credit and the current squeeze on prices now may be the time to replace ageing machinery or even to think about going into new areas of business, since many thriving businesses are started in times of recession.
Experienced bankers will be able to quickly identify those applications that have little merit and will hopefully recognise those that are based upon sound ideas and are supported by relevant documentation. So, doing your homework before applying will more than likely result in a successful outcome. But you may need assistance to achieve this, particularly if it is virgin territory for you.
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