How to Borrow from Your Bank
How to Borrow from Your Bank
Here are some tips to enable you to raise finance from your bank. Many businesses find they need to borrow to expand and understanding how your bank may look at things will help you to make the process easier for you.
Remember that bank borrowing has to have the interest paid and the repayments met on time, so what you must demonstrate is how you will do this in the future.
These tips are derived from my years of experience Here are our top tips:
1) Should you be borrowing at all? Obvious question, but if seeking loan finance you must be confident and be able to demonstrate how it will be repaid. For businesses looking for longer term finance where someone will share the risk of failure may need equity finance
2) Who else could be involved – remember that borrowing for expansion may also indirectly affect others: staff, your business partners and maybe family. You may need to be talking to more than just your Bank.
3) Shop around, but build a relationship – bank are competitive, so don’t be afraid to talk to more than one. There is something to be said for building a relationship though, as the more the bank understands about your business; the better they are able to assess how they can help.
4) If they won’t lend the money, get their feedback – “no” may mean “not like that”. If the bank turns down your request, talk to them to understand why and this will help you structure things better in the future
5) Standard tariff or negotiate? – for many small business lending situations the banks rely on a standard published tariff. This is easy to understand and straightforward, even if at some point you will think it’s too expensive. But if what you want falls outside their guidelines, feel free to negotiate what rates and fees they will charge
6) Your Bank manager may like a drink...but not in the way you think. Read on...
So, the drink thing: this relates to an age old mnemonic which happens to be the name of an age old beverage – CAMPARI.
CAMPARI is how bankers use the Canons of Lending to assess whether they should lend money or not.
It stands for:
Character – can you trust someone? Have they got a good record, for example of repaying borrowed money previously?
Ability – what track record do you have, and how can you demonstrate it?
Margin – the least important to the bank believe it or not, but there must be something in it for them
Purpose – why do they want to borrow the money, and is it structured in a sensible way?
Amount – how much do they want, but also how much in total is being spent – how much of the borrowers own money is being put it?
Repayment – how will it be repaid and when? How can this be demonstrated?
Insurance – what happens if something goes wrong? This may not necessarily mean an insurance policy, but could include providing some security – a Directors’ guarantee is commonplace for small limited companies.
CAMPARI was sued when lending decisions were made by human beings. These days many lending applications are credit scored by the bank’s computers, but the essence of what the computer programmes is assessing is CAMPARI.
Finally – don’t give up. By following these tips you will be better placed to talk to your bank and by listening to what they say will also learn about how to get the most appropriate finance and at the best price.
Phil Ingle
June 2011