The British Bankers’ Association provides pointers in how best to work with your bank to secure the finance you need in light of new guidelines.
Last October, the UK’s biggest banks made a series of commitments to support small and medium sized businesses. The Business Finance Taskforce was set up to analyse the facts, to create momentum: to ensure money is lent prudently to viable small to medium companies; and to support the economic recovery.
The banks set about delivering on these commitments and as some were relatively straight forward they could be implemented right away. For instance, banks now commit to contacting their business customers 12 months ahead of the expiry of a loan, allowing plenty of lead-time to plan the next steps. Other commitments are still being worked through with the taskforce and implementation is due by the second quarter of 2011.
Banks have been recruiting those with the right skills and qualities to become business mentors. The aim is to provide businesses with free access to these people so they can make the most of their relationship with their bank and be aware of just where and how they can find further financial and business support to succeed.
The first phase of the mentoring programme is already under way, and it will be rolled out regionally across the UK. A dedicated website, offering a search engine so that you can find a mentor nearby with the skills and experience you need, will be launched later in the year.
As part of the package of commitments to codify banks’ and businesses’ relationships, there is a new lending code for micro-enterprises and a set of clear lending principles for larger businesses. At www.betterbusinessfinance.co.uk there is a range of resources for small businesses (such as factsheets and links to other websites), as well as setting out the dates of events which could be helpful. This website has been developed to assist small and medium sized businesses by acting as a ‘one-stop-shop’ for business finance information. Additional material will be added to the site over the year to come.
To help you as a business entrepreneur to prepare for economic recovery the British Bankers' Association has compiled a number of pointers that could make a significant contribution to the continued health of your business.
1. Know the ins and outs
It may seem like teaching your granny how to suck eggs to reiterate this, but it’s crucial that you plan your cashflow requirements carefully and allow for any differences in the payment terms you receive from your suppliers and those you give to your customers.
2. What-if?
When you prepare your cashflow forecast, undertake a 'what-if' analysis. What happens if sales are 10% less than forecast? What happens if raw materials increase in price by 20%. Forecast the worst-case finance requirement so you mitigate the need to go back to your bank for more cash.
3. Regular reviews
Review your actual cashflow regularly - at least every month. If it’s not in line with your forecast act quickly.
4. Think, look, listen
It goes without saying that you’ll work hard to retain your good customers. But think strategically and carefully - don't become too dependent on one or two customers.
5. Incentivise
Do more than invoice your customers promptly and accurately - and follow up to check they have paid on time. Offer an incentive to customers to pay early.
6. Talking helps
If you think you might have a cashflow problem, talk to your bank immediately. The earlier you speak to them, the more options there will be.
7. Be open and realistic with all the facts
That way, you will have solid base for the banking relationship you will need in the future. Most of all, fully understand your own business plan and then monitor progress through it so you can exploit success and limit problems.
8. Reviewing the situation
Look at all of your costs and constantly search for ways to be more efficient. Don’t have a big cost-cutting exercise then forget about it.
9. Take advice
Make use of the many sources of independent advice available to small businesses (such as accountants, solicitors or business advisers). We will shortly be launching our free business mentor network across the UK. Watch out for the launch – it might provide exactly the resource you need.
10. Read the banks’ Lending Guidelines
Go to www.betterbusinessfinance.co.uk to understand the banks’ commitments to business. And be aware of the other new commitments from the banks’ Better Business Finance programme which could help your company.
11. The £2.5bn Business Growth Fund
to bridge the equity gap for growth businesses is now operational. Sir Nigel Rudd, one of the most experienced business leaders in the UK, has been appointed as its chairman and will be joined by chief executive Stephen Welton, who brings 20 years experience in industry as well as the private equity and growth capital sector. The Business Growth Fund will invest in smaller and medium sized UK businesses, typically with an annual turnover of between £10m and £100m. It aims particularly to help businesses that have often struggled to secure finance because of the equity gap for companies which are looking for long-term growth capital in amounts ranging from £2m to £10m. The Fund will be looking for sound investments where it can make minority investments, seeking to build long term positive relationships with the companies in which it invests.
12. Use the appeals process
There is now an independently-monitored appeals process for business customers to use when their credit application has been declined and they wish for a ‘second’, more experienced pair of eyes to review their application. Banks will contact unsuccessful applicants for credit to explain why their application was declined, outline the appeals process and suggest alternative sources of finance. The bank will work to achieve a favourable outcome for the customer wherever possible, and in any event will report back with a decision within 30 days. If the ultimate decision is to decline the application, the bank will try to help by setting out alternatives, such as other sources of finance and the Better Business Finance mentoring scheme. The scheme is to be operated by the banks, and monitored by an independent annual external review process.
13. Find a mentor
This summer the banks launch a nationwide network of business mentors. Banks have been contacting current and former employees, recruiting those with the right skills and qualities to become business mentors. They have been given comprehensive training in the skills they need to ensure business customers get the help and support they require. The aim is to provide businesses with free access to people with the skills and experience to help business to grow, to make the most of their relationship with their bank and to be aware of just where and how they can find further financial and business support to succeed. The first phase of the mentoring programme is already under way, and it will be rolled out regionally across the UK. A dedicated website, offering a search engine so that you can find a mentor nearby with the skills and experience you need, will be launched later in the year.