Firms that seek loans told to do crucial homework

Many businesses blame banks for starving them of cash after imposing stricter lending criteria, but a Yorkshire accountant believes many business owners aren’t helping themselves because they fail to supply relevant information when they approach banks to borrow money.

Shafiq Khan is a partner and head of Cleckheaton-based Clough Management Services and a member of the approval panel of the Business Enterprise Fund, which fills funding gaps for businesses that are struggling to secure finance from traditional sources. He believes banks are still keen to do business with customers that present a strong case and demonstrate that they can repay their loans but too many potential borrowers fail to prepare adequately.

He said: “The days when business owners could walk into a bank and get immediate decisions on six or even seven figure loans are long-gone. Nowadays banks leave no stone unturned and nearly every decision has to go past a team of credit controllers who can only base their decision on the information that’s given to them, so thorough preparation is absolutely vital.

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“In my role with the Business Enterprise Fund we meet clients ranging from sole traders through to companies with multi-million pound turnovers that require credit for all eventualities such as expansion programmes or covering cash flow during lean trading periods. Often the information provided is insufficient and badly presented, which does not help their case.

“Having up-to-date management information that is reviewed and evaluated on a regular basis is very important from a lender’s perspective and gives the bank confidence that a business is on top of all its critical components including debtors, creditors, stock levels, cash-flow and its balance sheet. Many banks will even offer improved lending rates on the back of good management information.”

He added: “Regardless of how much a business needs to borrow, if it shows that it will be able to repay the money then the outcome will more than likely be positive. Ultimately it comes down to being able to demonstrate clear direction and even if a business doesn’t need to borrow money it still makes sense to regularly evaluate its financial position on a monthly basis because identifying problems early can save a lot of time and expense in the future.”