Business Loan Help Please.

Melonade

Hi,

I would really like some advice on the chances of my OH getting a business loan

He is currently self employed but is having to turn work away because of lack of premises. At the moment he is managing to borrow some space in a friends unit but it isn't big enough for the work he is being offered.

He's been offered his own unit but now we are on the verge of turning it down due to lack of funds to set up :mad:

Hopefully he'll be able to speak to someone at his bank tomorrow and although he's not at all hopefull I'd like to try and help him as much as possible. He will need roughly £3000 mainly to kit the place out. He has work lined up, is very good at his job and at managing his business account.

With the banks not lending atm what are the chances of him getting this loan? What could he say to convince them?

Thankyou

paulwf

The banks will look for 2 things when you take out a loan:

- Security. This is the main issue, they need to know they can get their money back one way or another. Normally a house would be used but there are other ways including Enterprise Finance Guarantee, especially as it is such a small amount.

- Personal contribution. Banks like to see you believe in the project by putting in some of the money yourself. As the business is already up and running they may consider the existing input to be enough.

You will also need a Business Plan, see the Business Link website for basics on this or speak to your bank manager.

There are sometimes local schemes providing business loans for those that can't get bank funding. You could also try and use an overdraft or credit card as it is a small amount but obviously you have to be careful with that.

One thing I would say is £3K seems like a very low figure. Make a list of EVERYTHING you need and remember it has to be a reasonable standard for a commercial environment, and you may find £3K soon gets used up.

If you can provide security and have a clean credit history I don't think you'll have a problem getting the loan...good luck!

Melonade

Blimey

Looks like we've had it!! We are renting atm and have little put away for a personal contribution. Last time OH opened his business he got a grant from the Princes Youth and closed the business due to a few knocks... a robbery etc and then a better offer that turned bad. Looking back we both know it was a mistake... gotta learn one way I suppose.

We have possibly £800ish put away and have been saving for the 3K ourselves. Typical that the perfect unit is offered to us now lol. Due to his work it's very difficult to find premises.

Oh well I'll pack him off to the bank tomorrow and see how it goes, worst thing that can happen is they say "no"

Paul, thanks for your help it's given me lots to think about and lots to talk to OH about when he gets in.

PassedAtFailing

Am I reading this right? You only want £3000? What is that for and what does he do?

Melonade

PassedAtFailing wrote: »

Am I reading this right? You only want £3000? What is that for and what does he do?

Hi, yes we only need 3K and that's based on a bare minimum. It would be nice to have another 2K on top of that though to kit it out with better gear. But like he says, the more you borrow the more you pay back and some of the stuff he needs he can buy as he goes along with money he earns.

He's a paint sprayer so the money would mainly be for a compressor, materials to build a booth and heat/lighting for the booth, a welder and update his paint guns.

The £800 we have would cover the unit costs for a couple of months but it's worthless without being able to get the loan... frustrating but nothing we can do without the money.

FOURCANDLES_2

Speaking from a self employed perspective when we started out the Bank said NO he also said he did not think the business was viable granted he changed his view further down the line . When we started we needed money for a Van, steam press etc etc . In the long run we were glad they said no as 1 of our rivals went to the wall as they copied us but thought doing it as a franchise was better BIG mistake but the bank lent them 20k to do it??? NO rhyme or reason to there thinking. But if you can do it NOW with out borrowing Don't Borrow, get some money tucked away scrimp and save when you start up it is your committed out going which can cripple you should you have to go through a slack period.

paulwf

Are the premises short term rent or a lease?

Have an informal chat with the bank and see what they say. I think you should go for the £5K and do it properly, over 36 months it's about another £50 a month but with proper equipment your turnover should increase by more than that.

Enterprise Finance Guarantee could cover the security but it is a fair bit of faff for a small loan.

PassedAtFailing

Melonade wrote: »

Hi, yes we only need 3K and that's based on a bare minimum. It would be nice to have another 2K on top of that though to kit it out with better gear. But like he says, the more you borrow the more you pay back and some of the stuff he needs he can buy as he goes along with money he earns.

He's a paint sprayer so the money would mainly be for a compressor, materials to build a booth and heat/lighting for the booth, a welder and update his paint guns.

The £800 we have would cover the unit costs for a couple of months but it's worthless without being able to get the loan... frustrating but nothing we can do without the money.

I'll keep this brief.

If he is currently actually doing the work, he needs to take proof of turnover and profit. If he is not currently doing the work he will have to make do with a business plan and forecasts. Either way he needs to take a business plan and forecasts with him.

If he is currently working he is going to need to explain why he cannot afford the £3000 himself.

It will help an enormous amount if he has proof of having work to come. In the form of invoices or intent of purchase - you can raise capital on this basis.

Basically they will want to see proof the business can work. Sometimes they like the borrower to put in half of the capital for small amounts - but non-online usually have a lot more regard with business bank managers.

I would also consider taking the £5000 - but your own forecasts should tell you what is the best option.

Also consider the loan will last several years, so for a small amount, it may be much more affordable to borrow from a family member or friend.

Melonade

I'd judt like to thank everyone for their advice and help

Unfortunatley OH got knocked back for the loan as he didn't even nearly meet the terms. But on the bright side a family member has kindly offered to loan him £2000 :T So with the £1000 he already has he'll be able to make a good go of it. He's accepted the unit and moves in next week, he's got plenty of work lined up and is feeling a lot more positive. After some alterations, cleaning and tidying up he should be up and running within a fortnight.

I'm so pleased for him as I can see how difficult it's been for him to turn work away.

Thanks again to everyone, you've all been a great help.

Also I'd like to say how much it's opened my eyes to the struggles people are going through at the moment. I now fully understand how hard it is for business's to borrow money when they need it. I'm not completely ignorant of course but I didn't fully realise the hoops you have to jump through to be told "NO"

Premier_2

Glad you've got it all sorted now

Sorry I didn't see this thread earlier; if I had I would have proposed you asked for the loan in the following way:

1. You need a total of £2k to invest in new/updated equipment to fulfil new orders received.
In order to offset the risk to the bank, you are prepared to fund 50% of this yourself (The £800/£1k savings you have). As the equipment will obviously have an asset value when purchased, the fact you have funded 50% yourself means minimum risk to the bank (assuming no other creditors to the company) ... and repayment over say 3 years will only be about £30 per month max.
That should be easily be demonstratably achievable in a business plan if the business has the orders and potential you think it does.

2. Then discuss the issue of short term cash flow you'll also experience, requiring you to borrow a further £1k to pay the two months rental today (presumably something along the lines of 1 month deposit plus 1 month rent in advance)
The firm orders already in place will hopefully generate at least £400 extra income per month for the next two months if taking on the premises & buying the new facilities really was a good idea, so you could probably pay back that short term loan within 2 months (assuming full payment is expected from customers on supply of finished goods/services). The orders (assuming they are from financially robust customers who won't default on payment) should have been sufficient guarantee for the short term borrowing of this £1k to overcome cash flow ... but the business plan would need to clearly demonstrate it really was a short term cash flow issue that would be resolved in a couple of months having fulfilled the firm orders already in place. How, for example, will next months rent be paid after the sums you would be agreeing to pay the bank are paid?

paulwf

Excellent news