When you can’t get a loan, the tendency is to blame your bank. That’s understandable, but some people may have lost sight of the fact that banks are businesses too. They have to make a profit, which means they need funds available to them which are less expensive than those they lend. They also need to make considered assessments before putting their money at risk.
Rather than asking why the banks won’t lend, it might pay to ask what you can do to give yourself the best chance of obtaining funding – especially now billions of pounds are being targeted at growing businesses.
Paul Elsey, a senior business banking partner at Clydesdale Bank, says that ‘although the market for lending has tightened in recent months, for the right proposal and the right deal funding is available’. We also spoke to Andrew Morton, a relationship director at Fortis Bank, Mike Black, a relationship director at Lloyds TSB Commercial and others. Their top tips include the following.
Avoid over-optimistic asset valuations and performance projections for the business: this is a common mistake and a real turn-off for credit committees. Conversely, don’t ask for too little: going back for more very soon after drawdown will hurt your credibility.
Be prepared to think laterally with regard both to the structure of your business and the structure of your financing.
Use your advisers
Speak to advisers before seeking funding and during the process.
Have as much relevant information to hand as possible and communicate openly and regularly with your bank contact, whether news is good or bad.
… But not too much
Don’t blind the bank with unnecessary or over-complicated information, withhold information or make material changes or additional requests at the last minute – these all make the bank uncomfortable.
One banker summed up the assessment criteria applied to SME lending with an industry rule of thumb dating back to his very early years at the bank. This is called the CAMPARI principle: presumably because it’s none too palatable for some would-be borrowers. It stands for:
C haracter (of team/management)
A bility (of team/management/business)
M eans (assets/profits)
P urpose (of borrowing)
A mount (enough/too much?)
R epayment (ability to do so)
I nsurance (literally and by way of security)
The clear message from all the banks we spoke to was that they want to lend. That is their business and, ultimately, how they make money. The landscape, however, has changed.
In Mike Black’s words, ‘The banking world has been through a very turbulent period over the last 12 months and we are not out of the woods yet. Capital is scarcer than it was. Most banks are committed to supporting their customers through these difficult times, but the stronger your case, and the better prepared it and you are, the greater your chance of securing the funding you require.’