Accessing Business Finance “Bank Finance” Sharon Smyth Business Finance Mentor Derry City Council 26 th February, 2014

Simple guide to applying for Bank Finance BE PREPARED “Fail to prepare is to prepare to Fail”

Types of Bank Finance  Overdrafts  Loans –short, medium, long term – usually for stock, renovations, restructure and property acquisition  Hire Purchase/ Leasing -1-5 years re equipment  Invoice discounting/factoring - for working capital/debtor financing  Enterprise Finance Guarantee – usually loans were collateral is lacking,

Other Products  Internet Business Banking  Company credit Cards  Merchant Services  Treasury services  International Trade Services  Wealth Management  Investments  Protection  Inheritance Tax Planning

Mnemonics 5C’s- Character, Capital, Capacity, Collateral and Condition PARSER – Person, Amount, Repayment, Security, Expediency and Remuneration.

The Future of the economy depends on SME’s There is a strong perception that “Banks in general are reluctant to lend”  Banks have to lend  Banks will only lend to “viable” Businesses

Application Process:  Honesty, Integrity and reliability are a basic prerequisite for any bank application.  The Bank need to know all about the borrower  You need to help them build an accurate picture of your successes, experience, qualifications etc.  Identify any business problems – have they been resolved – how have they impacted your business. Character:

Capacity: You need to be able to demonstrate that the business has repayment capacity. It would be beneficial to have the following:  Certified accounts – 3 years minimum (Past)  Management accounts, Debtors/Creditors listing, Statement of Affairs (Present)  Projected Cash flow projections, business plan (Future)

Capital  Equity Capital  Debt Capital  Leverage/Gearing  Cost

Collateral  Given to the lender for protection in case of non repayment of debt.  Banks should not lend on the strength of security offered, but base their lending decision on the repayment capacity of the business  Always seek Professional advice i.e. Accountant and/or a Solicitor, when making a major decision in relation to your business and before offering personal guarantees or any form of collateral as security for a debt.

Conditions:  Expect the unexpected:  Be aware of Opportunities & Threats to your business  You may not be able to control these factors, but having knowledge will leave you better placed to deal with these changes.  Knowledge is power.

Finally:  If you are successful in your application – look closely at the cost.  Interest rates charged for SME’s are generally made up of Cost of Funds, Cost of Risk and Capital and Admin Costs. Is it an appropriate cost for your business or is it excessive.  Read carefully terms and conditions and be satisfied that borrowing funds is the right decision for your business.  Discuss your proposal with your Accountant/Solicitor before signing agreement.

 If your application for funding is declined, beware that you do have the right to “appeal”  If your application is still unsuccessful, are there lessons to be learned or steps to be taken to address issues affecting your business.  Most Bankers are happy to outline in detail the reason why they cannot accommodate your request – as it is in their interests to ensure that credit demand for viable businesses is met.

 If you go to the website of any of the local banks you will find some useful information and guidance on preparing a business plan. I would say that invest NI website is also very good.  You can also apply to Derry City Council for a “Business Finance Mentor”.