How do I Obtain Business Funding Successfully Even in Tough Times?
In tough times, it is many business owners’ instinct to avoid investing and hunker down, waiting for the economic challenges to blow over. But what if the economic challenges are here to stay? How will your business look if you stay exactly the same for the next 3-5 years? Chances are, your business will contract, while others thrive, because businesses need some strategic investment to grow and flourish. It is counterintuitive to invest in bad times, but fortune favours the brave. Avoid thinking defensively about taking on debt. Take a step back from your business to deeply evaluate what strategic actions you can take to stimulate your sustainable growth. The downturn should not dictate whether you apply for a business loan or not. This should be decided by your business growth strategy alone.
The government has provided considerable support for businesses. Government support is currently focused on short term measures that will keep businesses going through the pandemic. Businesses must also consider their medium- and long-term sustainability. Bank lending is an option, however approval of lending and funding applications is not always guaranteed.
If you want to access immediate bank funding, there are a few considerations to be bear in mind.
- Any approach to your existing bank must be a structured one:
- Try to gain a deep understanding of the impact of the Covid 19 pandemic upon your business
- Take time to think through and anticipate any mitigating actions required because of the crisis
- Fully reflect these considerations in your funding approach
- A bank or investors approach to credit risk is difficult to judge in these unprecedented times. Our 30 years’ experience tells us that they will assess your business based on whether they would have lent to you prior to the crisis.
Banks tend to assess the following considerations:
- How your sector will be impacted by the coronavirus pandemic longer term
- Have you got the right management approach and team to navigate the coronavirus crisis?
- Is your business model sustainable and profitable?
- How you communicate now is more important to lenders than the content of a funding application. Maintaining a calm professional manner is key both verbally and in writing.
- Don’t let the CBILS (Coronavirus Business Interruption Loan Scheme) distract you from other support that lenders can offer.
- As we head into uncertain times, we must prepare ourselves for the possibility that banks currently perceive an extra layer of risk. In the coming months, they may analyse their accounts and transfer some of them into their distressed lending division. This action does not need to be a doomsday scenario but does need a careful and proactive approach.
What is the distressed lending division?
Banks have a section that is run by a specialist team of experienced lenders and business managers that will help you get through difficult times. Bear in mind that what the bank perceives as difficult times (meaning risk to the bank) will differ from your own viewpoint.
Not a Reason to Panic – For many business owners, having their account transferred to the distressed lending team causes them to panic. They see this action as a death sentence for their business and feel they are doomed. But in reality, most banks put their highest qualified people in these sections. They have the skills and experience to drive a positive result and help you to figure out successful options.
Losing a Friend – Business owners may feel upset about losing their own business bank manager, who they know and trust and being transferred to a central team. They miss that cosy feeling when you know some-one well and trust them. What business owners should actually do is work closely with the skilled managers in the distressed lending team. By building a relationship with them, they will see that they will always side with the success of the business, working through sensible options.
Positive Outcomes – If the distressed lending team can see that you are making progress and hitting your company milestones, they can even lend you more money or offer you flexible payment terms.
Be proactive – Don’t go quiet! Keep the lines of communication open with the distressed lending team. They are there to help you and be positive.
- Banks are a law unto themselves. If you encounter any challenges, verbally bashing your bank will not help your case, even if it is justified. Vent your frustrations privately while keeping your relationship with your bank professional, no matter how annoying.
- Use external parties to help promote your company and support your application. This will give you the impartial perspective that is needed in these extraordinary circumstances. External support in the form of evidence will add weight and credibility to your application. Trying to negotiate your application internally can sometimes lack weight.
The above overview is just a starting point.
There are also lots more business options to consider:
- Evaluate your current cash flow situation
- Examine the government grants and initiatives
- Review your short-term business strategy
- Deal with the challenges of trading through the lock down and potential self-isolation
- Expansion and growth and taking your business to the next level
If you are currently mulling over your trading options, we offer critical business guidance based on finances and research. We offer consultations via phone or video link.
Article was written by Philip Waxman, an experienced business growth consultant with a focus on business growth planning, business funding, mergers and acquisitions and exit strategy. Philip is an ICAEW qualified accountant. Message Philip today to talk about your best business strategy options to withstand the recession in the coming economic climate. Call 0330 223 5030 or email on [email protected]