Finance

BaggieBoy_3

Hi,

Looking at borrowing some money to expand our small business. I'm in the process of putting all of the figures together at the moment.

Just wondered if anyone had any advice/hints/tips that may be useful when looking to borrow some money. The business has always made a decent profit so hopefully thats a plus point for us.

Any comments appeciated.

somethingcorporate

What are you borrowing the money for? and who do you intend to ask for it?

If you can build a mini-business case, such as you would have in your business plan, it should help.

It should be a fairly-simple construction. What you are spending the money on, why and what payback it will have and when.

It really depends on who you are borrowing from as to what you need to include. Angels or Investors will require a lot more rigour given they expect a return on their money compared to a bank who would likely just want you to be able to afford the repay the loan.

BaggieBoy_3

We're looking at importing a range of products from China. As we are a web design/SEO company we are designing the site ourselves, promoting it in the search engines and hosting it so there is very little cost apart from buying the initial stock. Thats what i need the loan for. I'm going out there soon and the cost of that will also be paid for by my company rather than out of any loan.

We bank with Santander so i thought i'd start with them but wasn't sure if there were any other companies/organisations i could approach who specialise in small business loans.

somethingcorporate

Given it is for stock rather than actual investment then a high street bank seems the most straight-forward place to go. Depending on the value you will probably need to provide personal guarantees i.e. your own house as security, I have seen this even for well established multi-million pound turnover businesses.

There is little harm in shopping around and talking to the business managers in other high street banks.

paddyrg

Good news is it's for tangible stock which can be liquidated to return much/all of the cash. But they may be slightly offput by the fact it is a whole different line of business - website design and hosting is very different from import/wholesale/retail and having to keep delivery deadlines, manage duty/VAT, comply with the DSR's as well as SoGA, probably be responsible for CE certification, extra staffing, etc. As such it may be worth preparing a business plan for the new business branch and treating it separately, using your current business as collateral against the new one? If you can, it may even be worth ringfencing the two businesses as limited companies to isolate the profit-making one from this new risky venture?

BaggieBoy_3

Thanks for the advice to both of you. Yes, im putting together definite costs at the moment before i arrange a meeting with the bank.

I was wondering about starting another limited company but i had decided against it as i didn't want the hassle that goes with it (ie filing seperate accounts, paying seperate fees, VAT returns etc). Maybe i will have to rethink that.

Acc72

BaggieBoy wrote: »

The business has always made a decent profit so hopefully thats a plus point for us.

Any comments appeciated.

Where are the "decent profits" ?

Also, how much are you looking to borrow : a couple of thousand £ ?

Do you have an overdraft facility in place with your bank ?

Generally speaking, it always makes sense to go to your existing bank first (if only to get something to compare to) as you already have an existing relationship.

BaggieBoy_3

Profits vary. We are only a small business but profits have ranged from £20k - £50k per year after paying all wages. Never had an overdraft. Our overheads are low so never needed/wanted one.

Not sure exactly how much i need to borrow yet but something between £25k and £50 i should imagine.

Santander are our existing bank. I will contact them once i have put exact figures together. Still waiting for a couple of shipping prices and trying to work out import duty etc

paddyrg

If you're making £20-50kpa net profit, can you sit it out for 6 months and have £10-25k cash on hand to do the imports with? It would save a lot of grief and you would not pay loan arrangement fees, overdrafts, etc...

BaggieBoy_3

I had thought that but, as always, there are things i want to do with the current business as well which will involve money. I will also need to take out a bigger dividend over the next few months to pay for various things.

Its an option. I was going to do that if the bank were not interested or the costs were more than i thought.

steve1980

Personally I think you'll struggle to get a loan when the business is making the money you want to borrow.

From a banks view, why would they do it?