Following the impact of the coronavirus, traditional high street banks and alternative finance providers have been deluged with applications for external financial support over the last 12 months.
With demand for funding once again expected to soar as the UK slowly emerges from the pandemic John Clarke, Head of Direct Sales at Wesleyan Bank, considers what do banks really want and offers five tips to enable businesses to gain credit approval.
Don’t forget the basics – it’s surprising how many businesses fail to provide basic information when applying for finance. Remember, lenders won’t know your business as well as you do and therefore can’t assess an application without some key financial and non-financial details.
These should include, but not be limited to, a summary outlining when your business was established, where it is based, what it does and its strengths and weaknesses within the sectors it operates in. You should also present industry analysis as to whether these marketplaces are buoyant by offering some perspective on supply and demand, the competitive landscape and a balanced overview of any potential risks.
Applications should state the purpose as to why finance is being requested, along with a brief description of the asset and what it will be used for. Providing softer details, such as highlighting your firm’s strategic aims and how the asset or equipment will support your growth aspirations, will enable lenders to form a better picture from which they can make an informed decision.
Provide clear and concise financial information – the financial performance of your business forms a significant part of the underwriting decision. Ensure you include your last full set of accounts and any management accounts you have, along with the last three months of the business’s bank statements. In addition, it is recommended to include financial forecasts, balance sheet projections and any business plans and company structure charts. It’s important to mention whether your turnover and profitability have been impacted by coronavirus or other specific trends, for example higher production and staff costs or seasonal cash flow difficulties.
Responsible lenders need clear evidence to determine whether your business can afford the repayments of a loan based on your trading performance and future outlook. If not, be prepared to address any concerns and highlight mitigating circumstances to offer reassurance that you can afford the repayments in the future.
Bring any skeletons out of the cupboard – applications that fail to provide accurate financial metrics will be rejected which results in a waste of time for everyone concerned. If your business has any skeletons in your cupboard, whether this relates to defaulted payments or past financial vulnerabilities, don’t attempt to hide them from prospective lenders as invariably they will show up and your entire application will be undermined.
Honesty really is the best policy so be sure to present any issues upfront so you can find the right lender who is willing to be flexible and consider a bespoke funding solution. By making them aware of any problems, or admitting you are unable to provide certain specific information, lenders can better prepare instead of having to question later why vital details were not disclosed.
Include detailed descriptions – one of the most common reasons finance applications can be delayed is due to a lack of detailed descriptions of the assets and equipment you wish to purchase. Merely stating ‘IT software and hardware’ or ‘machinery equipment’ is insufficient. Be specific by stating whether its new or used, the make, model, year of manufacture and list any serial numbers. Where possible, include quotes from suppliers and copies of original invoices. The more knowledge you can supply to help a lender’s credit team to reach a decision, the more likely your business will get a favourable outcome.
Nurture your relationships – alternative finance providers play a vital role in offering flexible funding solutions at a time when some traditional high street banks have become risk averse. But successful relationships require a mutual understanding and trust between businesses and their finance partners. Providing essential information upfront and offering transparency at all times makes it easier for lenders and reassures them that your request for finance is worthy of serious consideration. It will mean they have to spend less time chasing you for outstanding details and can instead progress your application far quicker, hopefully to the benefit of your business and in doing so cementing your ongoing relationship with them.
While there are a plethora of alternative finance options available, choosing the right financial partner is critical to enabling your business to invest for growth so you can approach the future with a greater degree of confidence.
Wesleyan Bank provides flexible finance solutions for businesses, supporting their cash flow and growth objectives. To find out more visit the website www.wesleyan.co.uk/commercial or call 0800 980 9348 (Mon-Fri 8.30-5.30pm)
Wesleyan Bank acts as both a broker and a lender.
Wesleyan Bank Ltd (Registered in England and Wales No. 2839202 VAT number 487282114) is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register No.165116). Wesleyan Bank Ltd is wholly owned by Wesleyan Assurance Society which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Incorporated in England and Wales by Private Act of Parliament (No. ZC145). Financial Services register number: 110873. Registered Office for the above Group companies is: Colmore Circus, Birmingham B4 6AR. Telephone: 0345 351 2352.