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Should a start-up business or enterprise go to the bank first?

How to approach financing your new business or enterprise

Coming up with a new business idea is exciting but one of the many challenges is finding the finance to help get your idea off the ground. When you are just starting out with no financial or business track record, it’s sometimes hard to get a traditional bank or lender to support you.

It could be a government grant, bank loan or another form of cash or capital injection that offers you the best funding options. However, don’t jump in and ask providers for funding straight away. Before you do anything, it is vital that you prepare in the right way, and position yourself and your business appropriately. Only then will you be in a strong position to approach a range of providers who can offer you suitable funding solutions.

Any start-up owner should go through the following steps before going to any bank or funding provider.

  1. Business plan

It’s imperative that you’ve done research on your idea, your market and the potential for your new enterprise. You should put this in writing in a business plan and include:

  • The business – the background, your proposed product or service, your plans, your long-term and short-term goals and the timescales
  • The industry or market – your competitors and the market characteristics
  • Marketing and sales – your target customers, positioning, promotion methods and pricing
  • Management – your skills and ability, your key staff and if there are any skills gaps and how you will overcome them
  • Operations – your facilities, equipment and transport
  • Financial forecasts – income, profit and loss, cash flow, balance sheet, break-even assessment with clear assumptions and your personal drawings for day-to-day living expenses
  • Finance – the extra funding you need and stress test repayment ability against the worst-case scenarios–
  • Risks – where things could go wrong and have a planned exit strategy
  1. Research banks and lenders

Banks and lenders all work to different guidelines and lending criteria. Before you submit any lending applications or proposals, approach the banks to research their lending guidelines and criteria to ensure your business plan is on the right track. If it isn’t, you can tailor your business plan and business model to fit lenders’ criteria. A financial professional with experience of working with all the lenders can help you quickly and easily with this step.

  1. Work with a team of advisers

It is very difficult to manage everything on your own and we recommend drawing on the skills of your family and friends, and the expert knowledge of professional advisers at the very start of your plans.

Friends and family can act as a sounding board for ideas and lend their appropriate skills to your plans and the future project. A solicitor will make sure you are structuring the business correctly from day one but also with the future in mind. An accountant will add credibility to your financial forecasts and help with tax efficiencies.

A financial consultant will have knowledge of the lender's criteria, can help you navigate the range of funding options available and negotiate with lenders on your behalf. Proactively working with a team of advisers who can pool their experiences and observations together will bring considerable benefits.

  1. Make sure your personal finance record is suitable

Before you approach any banks or lenders make sure your own personal financial record is good. A poor credit history won’t go down well with the banks, so do what you can to clean up and improve your personal finances.

It’s important not to rush into your search for finance. Planning and preparing your business plan and lender approach, and doing your research into lenders and their funding guidelines is crucial. If your plan doesn’t make sense, it won’t stand up to bank or lender scrutiny. If your plan doesn’t fit closely with businesses that lenders want to lend to, it won’t be successful. Advisers can help you with these steps.

With a well-prepared business plan and the correct lender approach, there should be no reason why you can’t find some sort of funding. Remember, the better your planning, the better lenders and terms you might attract too, so investing time in preparation will yield reward.

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