“Autumn is a second spring where every leaf is a flower”
These are the words of Albert Camus, the Nobel Prize-winning author. But does George Osborne’s Autumn statement offer the hope of a rebirth for the private sector?
The Chancellor’s credit easing plan is intended to make loans and overdrafts more accessible to small and medium size businesses, and at a reduced cost of borrowing. Given that the much-flaunted Project Merlin failed to live up to expectations, this latest initiative is understandably being met with some degree of scepticism. But the government appears to have learned some lessons, and this time around it intends to watch the banks more closely.
So how should you present your loan application if you want to ensure that your business gets its share of the £20bn that has been made available?
• Be current: Any potential lender will want to see how the business is currently performing – this means that last year’s statutory accounts alone just won’t cut it. Here’s an opportunity for you to demonstrate that you know your business well, by presenting up-to-date management accounts for the most recent month of operation, and explaining any notable variances against the budget and the prior year results.
• Be forward-looking: All business plans are expected to include projections for the future financial performance of the business. So to give your application the edge, set out various scenarios, including a depiction of how the business is likely to perform both with and without the credit you are applying for. And to really make an impression, you might consider supplementing your profit forecast with a cash flow forecast.
• Be presumptive: If, like me, you don’t have a crystal ball then you will need to make some assumptions in your financial forecasts. You can strengthen your loan application by clearly stating those assumptions to show the thinking behind the numbers. This also helps if the reader doesn’t know your business sector well, since it enables them to at least assess the reasonableness of your assumptions.
• Be risk aware: Your application gives you an opportunity to demonstrate to potential lenders that not only do you have an awareness of the risks that the business faces – for example, competitor response; exchange rate exposure; new legislation; political unrest; or data security breaches – but also, importantly, that you have actions in place for mitigating those risks.
• Be credible: The lender will want reassurance that your organisation is well-run. This doesn’t mean more bureaucracy – you just need to highlight the strengths of your business: the management team with its diverse mix of skills and clearly-defined individual responsibilities; the regular discussions that take place about business performance; the methods of ensuring legal compliance; and, of course, its robust financial management.
Amidst of all the debate about lending by banks, we must remain conscious of the fact that our common goal is to generate growth in the economy. If there is anything positive that can be taken from the more stringent review of loan applications by lenders, it is surely that it encourages us all to up our game – with the application process necessitating a close self-evaluation of our businesses and more carefully-considered spending. As both taxpayers and business owners, we cannot sanction credit being extended to underperforming companies as a means of simply delaying their inevitable demise. Only by ensuring that the available finance is extended to those businesses that can most demonstrate the potential to create jobs and increase output do we have the best hope of reviving our economy.
This article was written by Vicki Askham of threepointone Ltd.
To contact her email: email@example.com.
For more information see her Feature on thebestof Lancaster at http://www.thebestof.co.uk/local/lancaster/business-guide/feature/three-point-one/87106 or go to her web page at www.threepointone.co.uk
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