Snowman in Hell's Guide to Getting (refused) Finance for Your Business
When the banks are being flamed in the press for not lending enough money to UK businesses, it can be tempting to use this 'trend' as a scapegoat when one is refused a commercial loan.
There's no doubt that things have tightened up. But, there are many reasons why a business might be refused lending. To lump every denial of finance into the 'grumpy-bank category' is misguided.
So, here's a few features of a proposal that are sure-fire ways to increase the chances of being disappointed when applying for finance:
- No Deposit
If the borrower is not putting anything in to the arrangement, how can they expect others to? What is going to stop them from taking the money and walking off?
- No Collateral / No Security
A lender needs to see some form of collateral before they are willing to lend money. That is, something that the lender can hold onto and sell in forced sale if the borrower defaults on the loan.
- No Empathy or Common Sense
Many borrowers fail to look at the situation from the lender's point of view. A borrower needs to ask themselves if they would lend when faced with the same proposal.
- No Experience
Some potential borrowers hanker for a radical lifestyle change and might be willing to 'risk it all' to follow their dream. Unfortunately, a lender might not be willing to accept the same level of risk as the dreamers unless they see some evidence of sector-experience, skills or training in the mix.
The economic situation, today (March 2010), is generally believed to be more stable than it was 12 months ago. But it is still somewhat fragile and so lenders are bound to be appropriately cautious in their outlook.
Now that that's been said, if your business proposal has the legs to jump over those first, most obvious, hurdles then there are still many opportunities to raise capital out there. See a list of finance brokers who can help you to unearth them.
On the other hand, if you fell flat on your face, do not despair.
First of all, lenders are all ears. Its rare for a lender to refuse to listen to a loan enquiry. But, if the proposal is inherently floored, its pointless to pursue it in its current form.
Secondly, you just need to reassess the situation and your goals. Get real. Make a plan to nip each obstacle in the bud. Be creative. and work out how to bootstrap that start-up off the ground - that's what business is about.