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. (1 July 2019)
(Note: This checklist was written prior to Coronavirus. 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.