Lea says businesses need to provide evidence their company is in safe hands with a clear direction and achievable goals, much like an entrepreneur giving a pitch for a start-up.
“Directors need to be able to convince the lenders their business is under control,” he says.
Knowles agrees, saying the overall viability of the business is the dominant factor lenders will look at.
“At the end of the day, it comes down to the business case. It’s all about how well prepared you are in making the presentation, and not sounding too ‘doom and gloomy’. Getting financing is becoming easier, but the banks have the whip hand and are very choosy in which deals they finance and which they don’t.”
But a good story alone won’t get you far. Lea says this confidence needs to be backed up by solid finances and a strong financial track record.
“Good evidence of this is just simple management figures. If any person or any business is going for any form of lending, they need year-end accounts for the previous year at least in draft format and ideally in a final form.”
“You will need to have security first up,” Tony Markwell says.
“But businesses need to demonstrate they can pay loans back without relying on security, and there needs to be quite a high margin of safety between your property and interest.”
Knowles says banks have extremely stringent credit checks, and the more evidence that can be produced in favour of a business the better.
“You’ll need projections, audited numbers, management accounts, and all detail you can give around that. The more certainty you provide to a banker, the more risk you take out of the equation and the more likely you’ll get past a credit check.”
Of course, lenders won’t trust anyone on face value. Karmelich says businesses need to be prepared for extremely thorough credit checks.
“Make sure your finances are in a format which can be easily reported and are easy to explain. When a credit provider tries to get that data through an agency like us, you need to be able to show numbers that can confirm your viability.”
Additionally, while Karmelich says good finances will increase a company’s chance of success, he notes that any lender will investigate a business’s timeliness.
“The name of the game is propensity to pay. Whether you actually have a history of paying your debts is another part of the equation that any credit provider will check out through a credit check. Make sure you are paying your bills on time, don’t just show that you have the ability to pay them.”
“The other major thing is to make sure your credit report is up to date. If it has old data, it might not be presenting you in the best light and you don’t want then when you’re applying for credit. Get it updated.”
Lea says businesses need to ensure they have cleared their debtors, maintaining that banks will not look kindly on a large gap in the books.
“Certainly I would suggest that businesses make sure they have tightly controlled receivables. Too often we have companies without a controlled debtor book, debts over 90 days and so on.”
“Business need to clean that up as quickly and effectively as possible, and that’s just good business practices anyway. Typically a bank doesn’t want to see any more than 2.5% in overdue debts.”
Markwell also adds that borrowers to plan ahead if they need funding. “You can’t be going into an office an expecting to have an overdraft approved in a week, it just doesn’t work like that,” he says.
And if you’re in an extremely dire situation and desperately need credit to survive the next week – forget it. Knowles says the banks simply aren’t interested in turnarounds.
“These cases are just too high a credit risk. Balance sheets have been eroded in these cases, and while banks tend to look at historical figures and take the crisis into account, it just isn’t happening now.”
Businesses following these steps will not only find themselves in a better position to access credit, but also with a better idea of how to run their business.
The majority of these experts believe the market is recovering and that if SMEs handle their finances with care they can access the funding they need to fund growth.
“The markets are starting to improve now,” Andrew Inwood says. “But it’s going to be really interesting in the market as other lenders move into this space the banks aren’t taking up. And if other lenders are going to come in, when are they going to do it – and how? The next step will be interesting to watch.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
