FINANCE
Felix O’Regan
Clearing Group in December, and aimed at helping viable small businesses develop relationships with their banks and in turn access credit. It says businesses can develop relationships with their banks
by keeping them up to date on a regular basis about how their business is performing, being honest at all times and present- ing the bank with up-to-date financials. Te guide advises companies to invite their bankers to visit their premises to show them how the business operates. It encourages business owners to contact the bank for
advice and information in relation to finance and other busi- ness matters, and points to the importance of the bank rela- tionship manager. It says if yours moves branches, you should be contacted and introduced to the new relationship manager. Notwithstanding the reluctance by banks to lend money, Linnane advises business owners to ensure they have all the documentation at the ready when approaching their bank. “Tere are four or five things the bank needs – it obviously
needs statements both from the business and to show the net- worth of the individual. Your most important documents are your business plan and projections. Your cash-flow projections will show the bank where you think the business will go, and without a strong cash-flow projection the bank won’t give money at all.” Your Business, Your Bank confirms what Linnane says. It
advises businesses to give their banks: the business plan; finan- cial information and projections with up-to-date accounts; a tax clearance certificate; an up-to-date asset or liability profile of the business and its owners; and details of the proposed col- lateral that’s available to support the credit request. Applications, says the guide, are then assessed by looking at
your track record; your ability and previous business experi- ence; the purpose of the credit; the amount you’re looking for; your repayment capacity; security if required; and the market and your business’s place within it. However, the key word used by Your Business, Your Bank
is ‘viable’. From the outset, it is made clear that the guide is aimed at viable businesses. It even goes as far as to describe what a viable business is. It says it is a business with a history of successful trading and
profit or cash generation; with a management team that has adjusted its business model in the current environment; with good credit history over the previous three to five years; with a realistic business plan and cash-flow forecasts, particularly for
40 OWNER MANAGER VOL 4 ISSUE 1 2011
six to 12 months; and an ability to show that the business can return to solvency within two years. “To me, viable means from a business point of view or cash-
flow projection point of view; the viability of the business and the ability to pay it over three or four years. But banks seem to be moving the goal posts in terms of viability and they’re not willing to give advance money,” says Linnane. He adds that despite doing as Your Business, Your Bank sug-
gests, his clients are still struggling to get loans. “In my experience, we would have demonstrated a need for
the money and demonstrated a payment capacity, but banks aren’t willing to take the risk.” O’Regan encourages SMEs requiring credit to apply to their bank and to follow through on applications. “Tey should ensure there is a paper trail and provide the
information the lender needs to make an informed decision,” he says. “Unsuccessful applicants should use the appeal process by
using the bank’s internal appeals system and, for declined credit decisions by NAMA-participating banks, the indepen- dent Credit Review Office,” he adds. Businesses that are refused credit can apply to the Credit
Review Office to formally review any applications for credit up to €250,000. Despite this option, just 19 formal applications were made
by SMEs that had been refused loan applications by Bank of Ireland and AIB between July and September in 2010, an increase of just one on the previous quarter. Of the 19 applications, the Credit Review Office overturned
five decisions and provided credit to those businesses. Linnane says businesses have their reasons for not following
up on rejected loan applications. “Te reason clients feel a bit reluctant to do it, and I don’t
agree with their reasons, is that many of them have existing facilities with the bank, and they feel if they go to the review procedure that will impact on their existing facilities,” he says. However, the first step in getting credit is to develop that
relationship with your bank. For further information, you can access the Your Business, Your Bank guide at
www.deti.ie/ publications/enterprise/2010/YourBusinessYourBank.pdf.
Tis article does not constitute financial advice and should not
be taken as such. Owner Manager urges you to obtain professional advice when dealing with financial issues.
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