Struggling with debt? Why you should talk to your lender

By preparing how you’ll approach your lender, you can improve your prospects for getting finance.

Before the pandemic, and the widespread help the Government offered businesses via mainstream lenders, there was a common misconception that lenders aren’t keen to lend to small businesses and will only too readily attach strict conditions to any finance they do provide.

Yet, contrary to popular belief, under normal circumstances, between 70% to 80% of requests for finance are granted.

In this article, we’ll explain what you should focus on as you prepare to put your case for finance to your prospective lender.

The list isn’t exhaustive but covers many areas that will strengthen any request for finance.

It’s a bit like revising for an exam. If you prepare well, you’re much more likely to get a better result. If you don’t, you’re wasting an opportunity to present your business in a positive light to a potential backer.

As a result, before you meet your lender, it’s worth taking the time to research any aspects of business finance you’re unsure about. The lender won’t expect you to do all of this work yourself. There are professionals who can help you, such as accountants or finance brokers.

Building a relationship with your lender

There’s a great deal of difference between working with your lender on a purely transactional basis, and working with them as a trusted partner or adviser. Developing a deeper relationship can take time, so the earlier you start the better for you and your business.

Be proactive and stay in regular contact with your lender. Let them know when something goes well, and when you have a problem. Your ultimate aim should be to foster a strong mutual trust. To do that, you need to be honest and genuine.

A lender is there to help you develop your business, which in turn will be good for its own business. After all, from their perspective, the central objective on its scorecard each year is to lend money to businesses such as yours.

In that sense, you’re pushing against an open door. All you have to do is make a business case for them to lend to you.

Getting further advice

Learning more about this process is simple, as there is a range of free sources of information and guidance. For example, the articles on our Finance Hub can help you better understand how best to get finance, improve cash flow and deal with issues around debt.

On the subject of your business, you need to communicate the following points to your lender.

  • The history of your business
  • Your plans for the medium to long term (that is, 1–3 years)
  • What the money will enable you to do
  • Any challenges that your particular industry/sector faces
  • The key individuals in your business
  • The succession planning that takes place in your business

When preparing to discuss your numbers, ask yourself several questions.
  • If providing forecasts or historical figures for my business, am I confident in articulating them?
  • Can I explain what these numbers say about my business?
  • Do I understand EBITDA and how a lender might use it to assess whether I can afford finance?
  • Has my business tested any of its forecasts? If so, how and who did it?
  • Does my business have any key performance indicators (KPIs)? If so, can I explain its progress against meeting them?

It’s important to be honest with yourself and understand your personal aims, drives and fears. Specifically, the following:

  • What are you hoping your business will achieve for you and your family in both the short term and long term?
  • What drives you?
  • What keeps you awake at night?

If you’re aware of what’s driving you, and your potential weaknesses, you can guard against them causing you to make mistakes.

Taking the time to review your business plan is crucial. For instance, consider the following:

  • What research have you done into your market, customers and suppliers?
  • How will you know you’re on track?
  • What support and advice have you sought?
  • Which other professionals have you spoken to?
  • Have you practised presenting your plan, before you meet the lender?

Before you discuss with your lender the finance you’re looking for, make sure you can answer these questions:

  • How much money do you need?
  • How have you arrived at that figure?
  • What’s your stake?
  • Can you give a breakdown of where you’ll spend the money?
  • What business challenges will this finance let you overcome?
  • Are you asking for enough, or just what you think your lender will agree to?
  • How will you demonstrate that you can pay off the debt?
  • What other finance options have you considered?

You should also take time to consider other possible scenarios that will put stress on your business. These include the following:

  • What is your Plan B if things don’t work out as you envisage?
  • What if interest rates were to rise and/or your trade suffers?
  • What are the major risks for the sector generally, and your business specifically?
  • If these risks arose, who would it affect most – your customers, suppliers or staff? And how would you limit them in the short term and deal with them over the longer term?

You’ll certainly want to make sure you can convincingly argue that your business has the resilience to cope with all these pressures.

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