Posted: Wed 30th Mar 2022
Understanding why growth matters and what it looks like for your business is important.
Growing a business can take time, but with a realistic business plan that you believe in, it can be worth the journey. One way to fund this growth is through borrowing from a bank or another regulated financial provider.
Here are three steps to keep in mind when getting ready to talk to your bank.
Step 1: Know your trading history
Showing an understanding of your business's financial trading history is essential in any finance application.
It demonstrates that you know what's happening with your current operations and that you're capable of repaying any borrowings.
Your bank will want to understand this too and will ask for your financial accounts.
This would usually be in the form of a three-year trading history of the business – ideally, audited financial accounts, including your:
profit and loss account
Because of the pandemic, for many businesses, the most recent normal trading year was 2019.
Your financial accounts for that year will show your business's performance when you're trading in a normal environment.
If your business hasn't been trading that long, don't worry – you can provide the information for your trading to date instead.
Your accountant will be able to help you with these documents, and your bank might have them on file already.
Step 2: Know your challenges and opportunities
Businesses often start with a solid business plan, but events like COVID-19 can put business models to the test, highlighting not only challenges but opportunities.
For lots of businesses, the pandemic meant their business plans had to change.
In presenting your business plan, outline the key opportunities, challenges and potential risks for the business (for example, supply chain, staff, exchange rates, etc.) and how you manage them or limit their impact.
Demonstrate that you're aware of what's happening in the wider market that you operate in and any particular challenges and opportunities in your sector (for example, your competitors, pricing, the impact of digital and sustainability, etc.).
COVID-19 can be an example of how your business responded to challenges and opportunities. Lenders need to understand what happened in your business during the pandemic and how you coped with the financial and non-financial impacts.
So be ready to tell your business story and how you managed through this difficult time. This can help your bank understand that you know your business inside out and give it confidence about funding your journey for growth.
Step 3: Know your future plans
You'll need the same type of documents as described in Step 1, but this time with a focus on the future. That's:
your profit and loss and cash-flow forecasts
confirmation of what tax you're currently liable for
information for the bank about what your future project will entail
Knowing your future plans is key. You need a clear purpose for what you'll spend any funding on and how this will help your business grow.
You must also have realistic forecasts. You don't need to worry about the type of financial product you need – talking with your bank will guide you to suitable solutions.
The ability to repay what you borrow will be a deciding factor in any application. Your bank will look at all of the above to determine if your business shows it's able to make its repayments within an agreed timeframe.
These three steps will help you prepare for a conversation with your bank about finance. Remember they want your business to be successful as well, and building a relationship through open communication and showing you know and understand your business will put it on the right path for growth.