Viable businesses must not take 'no' for an answer

"Shop around" is the advice chartered accountants are giving viable businesses seeking finance from their banks. And if you don’t like the answer a manager gives you, ask to speak to someone more senior.

“If funding requests fail, businesses should be prepared to challenge the decision,” says Clive Lewis, small and medium sized business expert at the Institute of Chartered Accountants in England and Wales. “If you don’t think the person you are dealing with understands your business or the particular problem you have, try to talk to someone higher up.

“The banks say they are open for business and appear to be willing to lend to what they see as viable enterprises. In their terms this means having a strong, well-balanced management team; firm financial controls and accurate forecasting; a good product or service; a plan for recession and a sensible capital structure.

“A business with a good credit rating will be able to borrow a lot more unsecured than one with a poor rating. When turnover is falling, profits are falling and asset values are dropping, credit ratings go down. Banks have to put more capital aside to cover the risk of default for a business with a lower credit rating.

“The most contentious issue seems to be personal guarantees, but if the business hasn’t got sufficient assets against which the bank can lend, it’s not unreasonable for the bank to ask for additional security.”

Clive Lewis gives the following advice on how to get the best from your bank:

* promote your business, its potential and its ability to weather the recession;

* speak often to your bank contact;

* have a strong management team;

* have tight financial controls and sensible financial forecasts;

* model your financial needs carefully and avoid building in too much ‘headroom’;

* aim for strong control of day-to-day cash flow;

* tighten credit control and avoid bad debts;

* do not expect borrowing to be based on base rate;