the money guides

Dealing with banks and other lenders

Categories: Debt, Loans/Lending,

If you need to borrow money, you need to persuade someone to lend it to you.  You need cash to grow your business, and most businesses borrow in one form or another.  If you want to use someone else’s money, the bottom line is that you’ll have to give them what they want.  

First you need to know what you’re planning to do with the money you ask for and, because you’re asking for a loan, how you will (a) service the debt, i.e. pay the interest and (b) repay the loan.  

You’ll need to prepare a plan (see our guide on business plans) and at least a simple financial model.  You can ask your accountant to help you, but you know your business better than anyone else, so you ought to be able to have at least the first stab at this yourself.  

Depending on the amount you’re asking for, the term of the loan, the security you’re offering and the complexity of your business, something between 4 and 20 (max) pages should be enough.  The key elements are to explain what you want the money for and how you’ll repay it.  Doing this often helps entrepreneurs clarify their own thoughts, so it’s a useful exercise in itself.   

Now you’re ready to present to the lender.  Your first call is probably to your existing bank, but if it’s to someone you don’t know or you’re approaching through a broker, remember that first impressions count.  A broker or lender will want to feel that you respect them and their position, so treat them the way you would want to be treated yourself.  Some people in finance can be pretty arrogant; try to let that wash over you – you want their money not their friendship.  And they can be like that because there are always more opportunities to invest in than there are funds available.  

That said, you need a story and it needs to be clear and succinct.

  • What you do (in layman’s terms)
  • Who your customers are
  • Why you need the finance
  • How much you need
  • How long you need it for
  • How you plan to repay it

This should be clear from your business plan, too, but they may not have read that (remember, be patient: you want their money).  

If you’ve prepared this as well as you can, you will be confident and you’ll sound confident. It’s now time to let them ask questions.  The more questions someone asks, the more interested they are.  For you, the key thing is to listen to those questions and answer as succinctly as you can.  If you don’t know the answer, don’t waffle: just tell them you’ll find out and come back to them.  

It may take more than one meeting (or call), but they will need time to consider your request.  Ask them:

  • Whether they need anything else from you
  • How long should you expect before they come back to you

You don’t want to lose complete control, so if they’ve said they’ll revert in a week or so, it’s reasonable for you to ask if they mind you contacting them in 10 days’ time.  That keeps it polite and professional and means you don’t end up waiting for something that isn’t going to happen.  

If they make you an offer, give yourself time to consider it.  Make sure you understand the terms (what security they are asking for or whether you have to give a personal guarantee).  Charging can be opaque; you need to understand what it is you’ll have to pay and for how long.  It’s not just about the headline interest rate.

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Copyright © Chris Lowe, Colobus 2021

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