We’ve all seen the headlines. In the current economy, many businesses have tried unsuccessfully to raise finance. Their experiences have varied with lots of “flat no”, some “protracted maybe” and very few “definite yes” responses from lenders. The financing prospect for many businesses looks very bleak:
- Banks continue to strengthen their balance sheets. Lending is available, but is much tougher to achieve with higher rates, more security needed and more ‘setup’ or ‘consultancy’ fees than ever before.
- Government loan schemes have had a very low take-up, with demanding information requirements.
- Reduced trade credit insurance limits have increased debt requirements just to maintain existing trade.
- Venture Capital firms have focused on recovering lost value in their existing portfolios. Many funds have dried up.
According to a recent survey by the Institute of Directors, nearly 60% of UK businesses were refused credit by their banks last year, despite the government's efforts to boost lending. The survey found that 57% of businesses were denied money, and 20% used credit cards to finance their business. The report contradicts recent claims by banks that they are lending to companies that need finance. Recent editorial in The Daily Mail took a blunt view with headlines such as ‘SMALL FIRMS LEFT TO STARVE’ and ‘IN PROFIT BUT BANK SAID NO’ and ‘WE’VE HAD ZERO HELP’.
On the 19th of February, the Bank of England revealed that bank lending to businesses fell by a record 8.1% last year. It also said that lending to businesses ‘fell across all the main sectors’ for the third successive quarter’.
John Wright, national chairman of the federation of small businesses said that many firms faced huge problems in raising capital.
Economists, business associations and some high-profile business leaders seem to agree that 2010 will be no different, and businesses should not expect a return to 2007: businesses need to get used to the new economic environment.
Behind the headlines, the reality is that all of the banks are desperate to lend more money to increase their profits, BUT their credit departments have raised the bar in terms of criteria and commercially they have increased their prices. So, better-presented business cases are essential.
Another perhaps surprising aspect of the current situation is that entrepreneurs and business leaders with good business cases often don’t trust the banks, and so hold back on their true business growth plans.
So, despite their thirst for more business, banks are making it harder for entrepreneurs to borrow, and entrepreneurs are being more cautious about expansion and investment, especially when this is on borrowed money.
So what can you do to maximise your chances of raising finance in the new economy?
Well, the general views of those in the finance business seem to be saying that businesses need to get much smarter about where they look for finance and how they ask for finance. The days of simply relying solely on your local bank have gone – you need to be prepared to look at other banks, other options. And whatever options you look at, they all have one thing in common – they are looking for solid business cases, with good data to support your case and evidence of having the right talent in place to achieve your goals. It seems that many business owners are woefully ill-prepared when asking for financial support – from their bank or from any other source. Simply relying on your trading history just doesn’t cut it any more – lenders need to see a good business case and have confidence that you’ll achieve your goals despite the current economic situation. It’s never been more important for your business to stand out from the crowd – so you need to have your case more prepared than ever before.
Guide to Raising Finance in The New Economy
Vistage is the world’s leading Chief Executive organization, with over 15,000 members around the world. To reflect this new economic landscape we’re now in, we’ve produced a brand new UK Guide to Raising Finance in The New Economy that tells you what your options are and how best to present your case for business finance. To download your copy, simply visit www.neweconomyblog.co.uk/rf5 and fill in your details.
I wish you the best of luck if you are currently searching for business finance. I hope that this brief article helps a little, but be sure to request your copy of our new Guide to Raising Finance in The New Economy – it has much more detail and tips that might help you.
Best of luck
Vistage International (UK & Ireland)