When the bank says NO it might feel like a very lonely place. My main piece of advice is: DON’T PANIC! There is always something that can be done!
Just follow these 6 tips:
1. Don’t over-react
Don’t blame the funder that is saying no. The business funding world has changed dramatically since the heady days of 2006/7 when it seemed the banks always wanted to lend you more money. Their world has changed and there is almost a silo mentality amongst bankers leading to some crazy lending decisions – invariably in the negative.
Note the following comments from Lord Green, the Business Minister mentioned in our recent blog post:
These continuing ‘poor lending decisions’ have been formally admitted to by Lord Green, the former chairman of HSBC and now the Government’s trade minister, when he told a House of Lords Committee that the rise of so called “casino” investment banking has seen lenders “de-skill” their commercial banking businesses, which has led to “extraordinary” lending decisions about small companies being made. Bank bosses “know it’s a problem”, he added.
It’s important to stay on good terms with your funder, as hard as it may be at the time, accept the decision gracefully, and find out as much as possible about their reasoning.
2. Take advice
There will be alternative funding sources available to you. I would strongly recommend you take advice from a trusted specialist in this field to make sure you stay in control. Initial advice should be available on a free of charge basis!
3. Give yourself options
Try to create as many options as possible to fill the funding gap. Your advisor will be able to help here. It may be that you are able to negotiate continued funding from your bank whilst at the same time introducing replacement/additional finance from a new lender.
We have recently worked with a client who had suffered a significant bad debt and as a result had been put on notice by one of the banks. The business had kept a good relationship with the bank and Trans Capital were known to them. As a result we were able to keep the company’s overdraft in place, whilst at the same time replacing the existing invoice discounting facility with an increased credit limit of £1.5m.
Finally, and of course depending upon the urgency of the situation, try to ensure that the ‘new’ funding is appropriate for your business strategy over the coming months and years.
4. Don’t waste time
Be proactive rather than reactive. It isn’t sensible to wait until the last minute such that you don’t have any time to move. Just because you might have taken some advice, that will not be the end of the matter. The funding gap will not disappear, and if it is a reduction in facilities that is being proposed, and/or an urgent creditor threatening to take action, the day of reckoning will not be far away.
In any case you will sleep easier once you have taken the decision to stay in control and do something about your funding gap.
5. Keep your bank informed
By this I mean let them know that you aren’t just sitting on your hands and waiting for the worst to happen. Tell them that you are working with a third party with experience of the funding market place who has an understanding of your specific business strategy. This will ideally be someone who is known to the bank. Depending on the situation, it may be that you are taking turnaround strategy advice at the same time.
6. Create a sound business finance strategy
Use the time as an opportunity to create an appropriate business finance strategy for your organisation. This will ideally include both immediate and future funding requirements in line with you plans for the business.
If this is not your forte, the best thing you can do as a businessman is to recognise that fact and seek advice from a trusted source.
As always if you would like to discuss this article or have any comments please do not hesitate to contact me at john.thompson@transcapital.co.uk or on 0845 689 8750.
Image by: the|G|™