David Newbury, a Lloyds Bank Commercial Banking relationship director who specialises in the legal sector, answers the most common questions he is asked by firms about obtaining funding from a bank. (Updated 1 July 2020)
(Note: This checklist does not attempt to deal with any Covid-19-related issues. Please see the British Business Bank website for the latest information on the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS). BBLS is due to run until 4 November 2020 and CBILS until the end of September, unless the government extends them. During this unprecedented time, banks and other lenders will be adjusting to the latest situation on a daily basis.)
- Have a clear idea of your finance needs and exactly what the funding will be used for.
- Choose a suitable lender and the type of funding based on your requirement.
- Establish who you need to meet to discuss your request – and what information you need to give them. Typically, this will be financial accounts for the last three years; current management information (MI) including aged debtors and creditors, WIP, fee-earner breakdowns; business plans and cashflow forecasts; and personal asset and liability statements.
- Prepare well for the meeting or call. Know your business and be ready to answer questions on sales, department or fee-earner performance, costs, work in progress, debtors and creditors, and future plans and requirements (which are reflected in your business plan and cashflow forecasts in particular).
- Demonstrate that you understand the financial information you are providing. Explain any figures differing from the previous years, such as positive or negative swings in performance.
- Show your terms of engagement and pricing structure.
- Consider your firm’s positives and negatives. Completing a SWOT analysis may help (strengths, weaknesses, opportunities, threats).
- Check your credit rating and deal with any defaults or County Court Judgments (CCJs) in advance.
- Check that your HMRC tax and VAT payments are up to date.
- Check your website. Does it give a good impression of your firm?
- Decide whether you are prepared to provide security for the requested facilities if required. If so, exactly what type and how much?
- Consider what personal funds you have available to invest in the firm yourself. This shows your support for the business and means the lender is not taking all the risks.
- Talk the lender through your firm’s personnel: who in your firm has the experience and capability to manage the firm’s staff and finances? Who are the management team and what is their track record in running a profitable business?
- Explain in detail how your cashflow is calculated and then managed. Support this with evidence such as WIP and costs.
- Know your Key Performance Indicators (KPIs) and which ones are most relevant to the meeting. Which KPIs are you most and least confident of achieving?
- Be prepared to discuss your firm’s policies, recruitment, training and other risk-minimisation measures, especially on topical issues such as fraud and cyber security.
- Be clear on your firm’s strategy and your competitive edge versus identified competitors.