Business finance IS still available to SMEs
As an online retailer based in the UK we have seen plenty of ups and downs over the last few years. With all this talk of recession, depression and economic meltdown it certainly hasn’t been business as usual. During the summer of 2008 we decided that we wouldn’t be one of those companies that battons down the hatches and waits for the storm to pass. Instead we took it upon ourselves to develop a new arm to the business, expand our product range and begin targeting new customers.
Since 2005 we had been selling a range of budget priced goods online, we had noticed that along with the economic downturn our sales had taken a hit, in fact turnover was down around 20%. Part of the new expansion involved developing a range of luxury products aimed at customers who were not feeling the pinch so badly. Let us not forget, there are still 1000s of very well off people in Britain and Europe who despite the recession still have extensive amounts of disposable income.
To cut a long story short we managed to turn our fortunes around by early 2009, we launched our luxury brand and began to successfully retail luxury goods with price points we had previously had no experience of. Needless to say we wanted to build upon this success. It was decided that some capital was needed to grow the business over a two year period. The need for the cash was essentially to buy stock, grow the range and bring those products to an online audience.
A business plan was drawn up by our company accountant and a meeting arranged with our bank. Now it’s worth noting we have a very good credit history, no unauthorised overdraft use, and we have never defaulted on any business loans in the last. It was decided that we would apply for a loan around £50,000 under the enterprise finance guarantee scheme. Our bank of 4 years confirmed that with no security this would be the best option and that securing the funds should be no problem.
All seemed positive until after going through the motions they turned round at the last minute and rejected the application. There was repeated use of the phrase ‘in the current climate’ with remarks about it being impossible for us to increase turnover in a sector (retail) that is suffering so badly in the recession. There was a total lack of understanding for our business plan, and they refused to see any difference between the suffering sector of high street retail and the still progressive online retail sector.
By this stage our business was getting desperate for extra funds, sales were getting better, the brand growing, but without the funds progress was going to be slow and painful. As a member of the FSB I rang the company that they reccomend for securing business finance after they sent me a letter stating that “Business finance IS still out there” I gave them all of the particulars, emailed them our business plan and waited for the response. Nothing!
I then contacted a local business consultancy and explained the problem and my dire frustrations. It seemed I made the right call! I engaged with the consultants who basically outlined the current situation frankly and honestly. Certain banks (who will remain nameless for legal reasons) are simply not lending to businesses. They say they are, are even going as far as advertising it on their websites, but the reality is that they are turning down all but a fraction of applications for business funding. No wonder there is a recession on!
I was advised of two banks that were lending under the EFG scheme and told that as long as my business plan was viable and profitable they could probably get me the finance, for a fee of course. In this case 1.5% of the loan total! It seemed like the right choice, these guys knew the banks well and were also highly experienced at getting finance for SMEs.
They drew me up a new business plan that was fresh, extremely well presented and made logical commercial sense. It was in fact so well presented that a 5 year old could have understood it, I figured that if this was the case a banker just might be able to grasp it too. What I didn’t know was that the plan had been created to fit perfectly into the slot thats required for bank approval. A meeting was set up with the bank, the consultants came with me and together we presented the plan and the company to the bank manager.
Well what a result! Here I am writing this 4 weeks later with the money in the bank! A total of £60,000 borrowing has been secured with most of that guaranteed by the government under the EFG scheme. Having to switch banks is a small price to pay for having the extra capital injected into the business.
There is no doubt that obtaining business finance is certaily harder now that it was two years ago, but it IS still available and can be accessed if your business plan and application is presented in the right way. It’s worth noting that many banks wont entertain a second reading of your application if the first attempt falls flat on it’s face. You need to get the application right first time or lose your chance with that bank for the forseeable future. The word on the street today is that the government owned banks are the ones to target when you are seeking finance.
