Mon£y talks: The case for a good business plan

The past year has hit retailers in different ways. Some have stretched their finances as far as they will go and now need help from their bank in extending their line of credit. Others have seen an uptake in business and want to grow their store to meet this new demand. In either case, a visit to the bank manager is required, but what is the likelihood of getting the thumbs up?

According to the British Bankers' Association (BBA), the level of high street banks lending to small businesses rose by £271m in March, up 5% on the same period last year. Its statistics also show that 52,000 new small business banking relationships were established in the same month.

BBA statistics director David Dooks believes the figures indicate a willingness by banks to support small operators. "The stock of lending to small businesses has risen in each of the first three months of 2009, reflecting general banking support and individual bank pledges to make finance available. March also saw an upturn in the number of new small business relationships, bringing the total in the first quarter to a figure similar to the first quarter of 2008, despite the more difficult trading environment."

John Grange, advisor with government business support service Business Link, adds: "Credit has been more difficult to achieve in the past six months, but I think the financial institutions are slowly moving away from this and offering credit to retailers with sound business plans."


Plan it out


Grange advises retailers who are considering applying for credit to start with a proposition that is well thought out. "Now is not the time for half-hearted proposals with no information or research behind them. Ask yourself, what do you need credit for? You have to see money as a means to an end and know exactly how it will be used to grow your business."

He also adds that the lending option may not always be necessary. "It's important that you assess whether you really need it or not. Quite often, there are assets tied up in a company that can be used to finance either a business extension, or to clear debts. Have a look at your company and see if this can be done rather than rushing straight out and applying for credit.

"If there is a genuine need to apply for a loan or increase your overdraft then you have to be able to explain to the institution how this will grow your business and how it will enable you to pay it back, plus the interest they charge."

For retailers who are unsure about applying for credit, Grange advises them to simply talk to their bank. "Just go and talk. It's not an exam. Find out what they require from you and, if your plan is solid, they should want to talk to you.

"At no point should a retailer be humble and think they are too small or insignificant to apply for credit, be it for expansion or to increase an overdraft," he adds. "It's in the banks' interest to support these businesses and they should listen to you."

BBA spokesman Brian Mair says: "The key thing a retailer needs going into a bank is a business plan which takes account of the recession and its likely effects on the model. The businesses that will emerge healthy from recession are those that can anticipate and respond to changes in customer demand. Those are the business models lenders are most keen to support."


Coping with rejection


According to Mair, if your regular bank refuses you, ask why. "It is important to find out why you have not been able to get credit. If there is a problem in your proposal then borrowing from another lender will not necessarily provide the solution."

If the usual avenues of credit are closed to you, don't panic. There are other methods of obtaining credit. If the loan was to expand your business then contact your local Business Link office. It specialises in offering clear information and has a number of regional offices that offer financial support through the Solutions for Business scheme that is designed for businesses that have been refused credit from mainstream lenders.

"Different regions have different grants schemes that could apply to your situation," says Grange. "Depending on how much you want and what you want it for, there could be a scheme that suits you. I'd advise any retailer who has been refused a loan to contact their local Business Link office or check out www.businesslink.gov.uk."

Another route is to apply through the Enterprise Finance Guarantee (EFG) scheme. The £1.3bn government-backed scheme was introduced in January and provides small and medium enterprises an alternative method of credit.

Supported by all of the high street banks, the EFG provides a 75% government guarantee to the lender, leaving them to cover the remaining 25% of the loan. If a business meets the EFG criteria, they can then be approved for a loan of up to £1m. However, there is a 2% per annum premium on top.

Federation of Small Businesses spokeswoman Sophie Kummer claims interest in the EFG has been huge. She says: "More than 2,900 businesses that have applied to the EFG scheme have been approved for loans."

With options available for retailers looking for credit, there is plenty of opportunity to grow their business and come out of the recession stronger than before.