What lenders are looking for

 Ray Cox, Managing Director of Medifinance explains the importance of presenting an evidence-based case when seeking funding

I'm sure you've heard the saying that banks lend money only to people who don't need it. Which at face value seems both contradictory and faintly ridiculous. But a cautionary tale highlights why perhaps there is more than a germ of truth lying there.

I was talking to a particularly successful practice owner recently who was looking to expand. His business was certainly profitable, and he had never experienced any significant difficulty in finding funding as and when needed. Essentially, he considered himself and his business to be 'a good risk' and that his relationship with his bank would stand him in good stead. 

This would, almost certainly, have been the case when that relationship was effectively between him and the Bank Manager, but things are different now. Firstly, he had to establish the right person within the bank to whom the funding application should be submitted and having done that send in his written plan for 'consideration'. He was not given any guidance by the Bank on what the plan should cover, but he felt he could put together a proposal that would produce a positive response.

Much to his amazement he was turned down flat. Why? Because, successful as his business was (and is!), he did not present an evidence-based case for funding. He made the assumption that a detailed, costed and realistic business plan was not necessary.

How to prepare a plan that will give you every chance of sourcing the funding you need

Of course, rules are there to be broken and a good few entrepreneurs break them and still the profits roll in. But for we mere mortals, it makes sense to understand from the start that to run a successful business and maintain that success depends on one key factor…..being and staying informed.

This means you will run your business in a business-like manner. It also means that when you need funding the lender appreciates that your case is based on reality rather than speculation.

1. Above all, monthly management accounts will demonstrate you keep your finger on the pulse. It will immediately convince the lender that you have the level of commitment required to run a business responsibly. Quite simply, it is not being run well unless it consistently monitors its costs, its profits, its losses and its cashflow.
2. It always pays to have a good team of advisers that understand their roles and can lend authenticity and credibility to your business plan. An accountant with experience of the profession is a given, but, depending on circumstances and resources, you may add legal, marketing and financial advising expertise to your team.
3. Indicate your ability to delegate and put in place the reporting procedures that allow you to assess and implement the information provided.
4. Be absolutely honest about the costs involved and the resources required to implement your plan. Do your research diligently and demonstrate you have done it. Do not attempt to ignore potential problems in the hope that 'something will turn up'. It rarely does!
5. As appropriate, support your application with evidence of your financial track record and management eg:

• Loan repayments
• Credit rating
• Credit control
• Management and control of overheads
• Cashflow
• Salaries, bonuses and pensions policy
• Assets