In 2014, the bba has noted that every quarter saw at least a 10% increase in SME borrowing from banks. It’s the go-to source of finance for most businesses and the competition for acquiring a loan is getting tougher.
As business consultants in London, we can corroborate this with our own experience. Banks want to help. They want to see businesses grow and flourish. But they have a responsibility to make sure that the money they lend out doesn’t disappear – so there is usually a thorough approval process that you must go through.
UK small business owners, however, are failing to present themselves in the right way – and according to the Bank of England Trends in Lending report, lending is expected to increase for all but small businesses in 2015.
Typically, business consultancy services and business mentors in London do assist with this process – but not every business in London has a business mentor or business consultant. So what’s wrong with the way many UK small businesses are applying for loans?
The Key Factors in Getting a Business Loan
The main problem that SMEs in the UK seem to have is a lack of understanding of what the most important factors are in getting a loan approved. These include:
- Proving your business has Interest Coverage.
- Showing your Borrowing Capacity.
- Clearly displaying the Cash Flow in your business.
- Having a robust Business Plan.
As mentioned above, the banks want to support the local business community, but when they are presented with poor or missing historical financial information and unclear base assumptions toward future projections, it becomes impossible for them to approve loans.
The truth is, the banks want to expand their loan portfolio in the SME sector. So if you can give them a stellar application, you’re more than likely to have your loan approved.
At the Strategic Planning Session, we act as business strategy consultants in helping actually build a business plan which will help with this application tremendously.
UK SMEs Need to Focus On Robust Business Planning
Far and away the most crucial factor in your loan application is having a business plan that proves the business is viable and easy for the bank to say ‘yes’ to.
In many of the specialised planning workshops that we run with banks, we have helped business owners to create a plan that puts their company in a really favourable light but also helped them to build a more financially stable business in the process.
By doing this financial planning and organising you prove – both to yourself and the bank – that the business has the ability to cover interest payment and has an ever-improving borrowing capacity while growing cash flow and profitability. It’s all about checking your financial assumptions and making sure that they make sense to the bank.
What Needs to be Included In Your Business Plan for a Bank Loan
When you’re creating your robust business plan for the purpose of getting a bank loan, there are a few key elements that absolutely any business should have defined explicitly:
- An understanding of the financial drivers for your particular business.
- Projected Profit & Loss.
- Projected Balance Sheet.
- Projected Annual Cash Flow.
- Marginal Cash Flow Projections for a 5-year period
All of these should, of course, be supported with detailed explanations on how you are going to achieve these projections. It is beneficial for you to have a business mentor or business consultant to review this sort of information to make sure that there are no loopholes or blind spots that you’ve missed out.
Essentially, banks want to know your finances are in order and that your business has real viability. So if you are looking for a loan, look upon it as an opportunity to create a professional and sophisticated business plan and get a re-education about what makes a business more financially viable so that you can grow your business with intelligence and profitability.
If you would like to hear more about this please feel free to get in touch below.