Thousands of great business owners are being left without funding because they don’t tick the right boxes with traditional lenders. Decisions on lending are being made by head office administrators that never meet the business owners borrowing the funds.
Power has been taken away from regional teams and placed with head office; this is part of a wider trend towards less personal lending.
But it means the lender can’t fully assess the most important variable: the business owner.
A traditional lender will make a decision based on a set of rigid criteria. It’s understandable why large lenders use this approach (it saves a lot of money and concentrates on established businesses), but it leaves a large number of great businesses struggling to raise capital.
We prefer to do things differently. Instead of imposing rigid criteria, we take the time to understand every application we receive.
Sometimes we’re asked to assess a proposition another lender has rejected and need to take a closer look at the business.
There is a wide range of factors we’ll consider when making a lending decision. Here are just a few:
- Is the business case strong?
- What assets do the business own?
- Have we worked with the business owners before?
- If there are negative points (like adverse events) do we understand why they’ve happened?
- What is the track record of the business owners?
- How much risk is the business owner taking on?
And finally, a point that is hard to quantify but is hugely important—do we believe in this entrepreneur to deliver their plan?
Here are five traits we commonly see in business owners that tell us they are going to be successful borrowers:
#1 Strong Planning
If a business owner has a clear reason for a loan and has thought through the process, this is an important indicator of success. It doesn’t mean we need a 20-page business plan or a spreadsheet with complex financial ratios (although that kind of information can be helpful if available).
We’re looking for a clearly articulated business case that shows the business owner has considered the risks and has a clear plan to achieve their goal.
#2 Skin in the Game
Personal exposure to failure is really important; Red Flag Alert released an article recently suggesting that businesses where the owners don’t provide funding are 2.8 times more likely to fail.
We don’t require owners to invest their life savings in a business, but if they have made a personal investment it shows they believe in the idea and are likely to work hard to make it a success.
#3 Relevant Experience
We’re always looking for relevant experience. It doesn’t need to be a string of successful businesses, but we like to see some evidence that that entrepreneur understands the field they’re operating within.
When Fame Tate came to us for a loan to buy Stanedge Golf Club, a key factor in our decision to provide lending was her experience in the golfing sector. Even though she had never started a business before she had experience in the playing, business and coaching side of golf.
We are comfortable lending to first-time entrepreneurs if they have experience in the sector or have a business partner with the right background.
#4 Financial Literacy
We always require our borrowers to seek independent legal advice before taking out a loan, so they must have a solid grasp of the numbers behind the business.
We don’t require detailed budgeting and management accounts (although it’s great if they are in place), but we do need the business owners to show a clear understanding of what they’re agreeing to and a plan for making repayments.
In business, things don’t always go to plan. We understand and accept problems happen, and always try to work with borrowers that communicate clearly and keep us updated.
A borrower with strong integrity always answers our calls and takes responsibility for managing their financial commitments.
We Look Beyond the Paperwork
If you are a business owner or broker and you need financing, don’t hesitate to get in touch. We’ll always go beyond rigid criteria to understand the business case, and most importantly the management team.
To discuss a loan of between £10,000 and £1m, please get in touch with one of the team at firstname.lastname@example.org or on 0161 451 5710.