Loans to small businesses, Fairy Godmothers, and how to borrow without tears

30 Mar 2017

Smaller businesses, including some larger small businesses, have not been well served by the banks in recent years. At some point in time after the Romans left Britain, local bank managers began to disappear, to be replaced by public-facing puppets controlled by head office loan officers who either lacked authority, or imagination, or both. Strangely, some banks still advertise that they help businesses, and we even get statistics noting how many loans they approve. Statistics can be easily manipulated, and if a bank delays, asks enough questions, and generates enough red tape then applications can “lapse” and drop out of the equation, for example.

Some banks (and other financial institutions) will lend, including boutique banks and the new breed of “Challenger Banks”. At McLean Reid we’ve seen decent financial support offered by a number of these organisations and by the big clearing banks, but results are patchy. Going to your bank as a loyal and long-term customer seems no more likely to succeed than sticking a pin in a Google print-out, so you need to understand and play the system to obtain finance, or even a decent banking service (and the two may not come from the same source).

There is every reason to approach your bank, but if that doesn’t work you have the right to appeal through an independently-monitored process, and while this option is little known, it may be worthwhile (see BetterBusinessFinance.co.uk/appeals).

From 2017 the nine largest banks have signed up to guide small and medium sized businesses towards alternative funding sources when they feel they can’t help (or “have no appetite” as the term goes). Under this scheme these banks are legally obliged to refer you to potential alternative providers if they refuse you finance. Not many people know that.

We ordinarily suggest that you approach a reliable financial broker before you spend excessive time chasing down diminishing options, particularly as local personal knowledge and the ability to put together a sound proposal may be more important than a list of possible alternatives. There are reasons why businesses prepare a business plan before they apply for a loan, and there are reasons why you should consult experts who can help decide where to apply depending on the amount, and circumstances of the borrowing. There are three online platforms – Funding Options, Business Finance Compared, and Funding Xchange - that exist to match businesses with suitable lenders. Good brokers or, potentially, these platforms access a range of niche players in banking and commercial finance, crowd funding, and other areas including Factoring and related finance that for the right business can be highly cost –effective and readily available.

Obtaining business finance is about asking the best people in the right way, so don’t take a knife to a gun-fight, take professional advice and improve your chances!