The latest Small Business Finance Markets Report highlights the importance of good advice for SME’s when it comes to credit applications.
Professional advisers play a crucial role in oiling the wheels of commerce across the country. With a large network of contacts in the business services arena there is normally an avenue open for most requirements and finance is no exception.
Introducing a business to a finance provider however will not always be sufficient support on its own as some will require knocking into a shape that will be an attractive proposition to a lender. An underprepared company will find any level of due diligence a trial and might project a less than helpful image.
The report by the British Business Bank does include some data that could imply this issue is fairly widespread. Estimates based on survey evidence suggests that almost 100,000 SME’s with approximately £4bn of debt applications are rejected each year with start-up businesses likely to be less successful when applying than the more established ones looking to grow.
Viable or unreliable?
Obviously a fair number of these declines will be based on sound commercial sense but it’s difficult to ignore the fact that there are probably a good number of viable businesses amongst them that could be successful if they presented even just a slightly more professional proposition.
Information is key when applying for funding so getting the ducks in order in respect of accounts, forecasts and projections is an area where professional advisers can add tremendous value. Knowing exactly what a lender wants to look at and then making sure it’s available will smooth the way and help speed up the process as well.
Does size really matter?
Interestingly the report does touch on the fact that if a lender has to do most of the leg work when it comes to due diligence then that cost will be directed at businesses where the likely return will be greater. Businesses at the smaller end of the scale that are underprepared in terms of paperwork will therefore find the “Declined” stamp out of the drawer more often.
In the case of start-ups, the report states that “a lack of track record makes it even more difficult for finance providers to assess the risk”. Clearly in such cases the need for a detailed business plan is a good starting point.
Luckily, there are finance products available that are specifically aimed at the smaller businesses and those starting up. And whilst there will be a level of due diligence performed the emphasis is firmly centred on the quality of the sales ledger.
With simple costing structures and no long tie-ins they are there to buck the trend and keep the declined stamp firmly in the drawer.