As the UK peeks hesitantly out from recession, small business and kitchen-table entrepreneurs have got a pretty good justification for being confused. David Cameron at a recent CBI conference put bank lending at the top of his list of priorities. Yet the high street banks are being pretty tight with their money. Oh, and don’t we own quite a lot of bank real estate anyway? Isn’t it our, the taxpayer’s, money?
Well, put away your prejudices: running a business is about cold hard honesty; with yourself and with other institutions, so let’s stick to the facts:
1) Banks are businesses too, and they’re only going to lend to small businesses who can demonstrate financial responsibility. If “Bob from down the pub” popped by to ask to borrow your life savings, you’d rightly think twice. Lesson: Don’t go in unprepared – have a decent business plan. Not down to the last dotted “i”, but a credible way you’re planning to turn effort into money.
2) Two decades of cost-cutting mean that despite having “business managers”, there’s no guarantee that your local bank’s employees have real business skills or judgement. Lesson: Shop around. Pitch to more than just the bank where you hold your personal account. Look for a business manager who is prepared to give you a good hour of his/her time.
3) If you entertained “Bob from down the pub”’s request for cash, you might also want to know what he was going to spend it on. “A holiday in Rio”, or worse still “I’m not really sure”, aren’t good answers. Lesson: It’s not the amount of money you ask for which matters; it’s how reasonable your plans are for spending it. Ask your bank for too much money without a good reason, and you’ll be laughed out of court. Equally, ask for too little and they will also take a dim view – and even if you get it, you’ll be begging for more three months down the line. Banks are looking for you to ask for the “porridge amount”- what Goldilocks would have deemed “just right”.
4) Unfortunately, perception does matter. At Yoodoo, we think that whilst the glass ceiling does still exist, it’s as much media myth as reality. There’s no reason for women or mums in 2010 to think for one moment that they will be the subject of discrimination, however subtle, but that’s no reason not to be business-like in your approach. Lesson: Turn up for meetings with the bank on time. Dress appropriately, prepare and plan key aspects of your pitch, and in particular anticipate challenging questions. Don’t expect the bank to view the pressures of childcare as any excuse for bad management: they’ll expect you to look after their money as well as you do your own child.
5) Money doesn’t come for free. Loans are available in all sorts of shapes and sizes, with interest rates which reflect the risk the lender is taking. That’s why in the cold hard world of finance, door-to-door loan sharks charge (often literally) extortionate interest rates; whereas banks are kinder, but expect you to put up some collateral. Lesson: If you’re prepared to put up your house or similar item of value as collateral, you’ll get a more lenient rate of interest; because not only are you protecting the bank, you’re demonstrating extraordinary commitment for your own part.
So in summary:
- know what you need to borrow and why;
- shop around;
- show you’re committed;
- and expect to be examined under the cold magnifying glass of financial responsibility like any other entrepreneur.
Rise to these challenges, and there’s no reason your bank shouldn’t give you a fair hearing and a great start.
This post was guest written for us by Tony Heywood, co-founder of YooDoo.biz, – an interactive online resource which gives people practical tips and advice from business experts on how to set up their own business. Using the site, users can build their own business plan and follow step by step tips personalised to them depending on what type of business they are looking to set up.