Business Finance Made Easy

David is a former corporate banker, having accrued over 20 years in the commercial lending sector.

He now runs a business finance advisory, helping companies obtain finance in an ever more difficult environment.

David also writes articles for Freelance Advisor, many independent blogs and has provided comment for The Sunday Telegraph.

AUTHOR BIO:David Farmer cCIB, MIOEE

Background & Introduction 4 Campari 5 Sensitivity 7 Contact Us 9

In 2012, lending to

businesses by the UK

Banks fell by £4bn,

its lowest level since

2010 Daily Telegraph

Table of Contents

The most common mistake companies make when applying for finance is a lack of understanding of what the lender wants.

We equate applying for bank finance to playing a game, except in this case your opponent doesn't tell you the rules.

Common sense says that the more you know about the rules the more likely you are to win, or in this case to successfully raise finance.

What we try and do is give you an idea of how a lender will assess your business, and in this way allow you to better prepare, address your weaknesses, and massively increase your chances of success.

In this E-Book we will look at one business appraisal model and one financial appraisal model.

Whilst every lender will use something different this provides a very good guide, and a 'heads up' on what your lender is already thinking about your business.

Business Finance Made Easy

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Research from The IFS suggests in 2012 only 24% of businesses received the finance they applied for

Campari? It is actually far more than a 1980's drink.

The Campari model is a useful tool, and more importantly is one of the easiest for a business owner to apply to their own company.

Character (that is you and/or your business. Think skills, knowledge, experience etc)

Ability (management team, structure, leaders etc)

Margin (think profit/cash versus the loan repayments)

Purpose (what/why, is it relevant, reasonable, sensible etc)

Business Finance Made Easy

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Purpose (what/why, is it relevant, reasonable, sensible, business need etc)

Amount (£50k for a ford fiesta is unreasonable, right price for purpose)

Repayment (where from, think how many clients you have, repeat business etc)

Insurance (aka security, think what if, what am I prepared to give/ prepared to lose)

It is important that when you look at these areas you remain honest, every business has weaknesses, however it often takes strength to admit to them.

Remember that these are only a brief example, if you want more detail then get in touch.

£45k for a Ford Ka is unreasonable, whereas a Bentley as a company car is probably not a relevant purpose to borrow

Business Finance Made Easy

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There are two types of appraisal a lender will carry out, these are best described as 'Financials' and 'Non-Financials'.

Campari looks at the 'Non-Financials', or the company, it's market, operations, strengths and weaknesses etc.

To demonstrate how a lender will look at 'Financials' then we will use a simple Sensitivity Model.

Remember that this is an example and deliberately kept brief.

Sensitivity

Let’s look at a quick example. Business A Limited, is presently trading, the accounts last year looked like this -

Sales 500,000

Gross Profit 250,000

Costs 175,000

NP 75,000

So, on paper it all looks pretty good. So what would happen if sales fell by 10% and costs rose by 10%, with net profit of £75,000 you might think it is all OK.

Look at performance with a 10% change -

Business Finance Made Easy

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Sales 450,000

GP 180,000

Costs 192,500

NP (12,000)

All of a sudden the company has made a loss of £12,000.

Business Finance Made Easy

What is the likelihood of this happening?Not that unlikely, energy prices have gone up 11% in 2012, add on fuel costs with everything else and 10% is not unlikely.

What Should I Do?Any lender will look at what impact these changes will have on their affordability. Any lender will also add in a hike in base rate (from 0.5% to around 4%) then judge affordability.

It is common that a business will provide three levels of forecast, so bear in mind that your lender will ignore the best, read the likely, and listen to the worst. After that they will sensitise the worst case.

In this way you make sure you have shot yourself in the foot.

We are not saying don’t produce a worst case scenario, but we are saying think about it. If necessary show what you have done, why you have changed costs. In other words do what the bank are going to do, but do it for them.

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50 % off Quote EBK13

We are happy to offer input, ideas and guidance completely free, so please make use of our expertise.

Where you want us to actively help you grow your business, or work for you in obtaining the right finance for your business, then contact us using the voucher opposite for 50% off our standard fees.

Contact us on 01293 541333, 0844 682 1462 or info@limeconsultancy.net

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