Business loans - blood out of a stone?
Perhaps unusually for a lecturer in a business school, I have not only run businesses, but on one occasion mortgaged my house against my business. So I have experienced going to the bank to arrange a business loan and the bank manager didn't even make a pretence of understanding our business model, he only needed one thing. Collateral. In other words, "we will lend you money only if we know where we can recover the money from your assets when it all goes wrong". I'll put this another way, "we will gladly lend you money as long as you can prove to us that you don't really need it." I thought my experience was out of date until recent conversations with the owners of SMEs. One - an old friend who has been running a small hi tech firm for 20 years now - told me in some detail how it is now more difficult to arrange lending than it has ever been. Even more difficult than at the height of the so called credit crunch. Even more difficult than 1991 which was at the height of that awful recession and his business was new and therefore without a track record!
So, did it all end happily for me? Well I still have the house. And I also know what to expect if I want to set up another business. So, to entrepreneurs and owners of Small and Medim sized Enterprises (SMEs) in need of finance, for what it's worth, here are my top tips. Borrow from your relatives, max your credit cards, raid your children's piggy banks, remortgage your house, sell your jewellery, sell your CDs, run your business on a shoe string, call in favours for freebies, go on Dragons Den. But don't expect to be able to borrow from the bank. Don't ever think you will build a relationship with anyone who can make decisions at your bank, until of ourselves you are making enormous profits and then all sorts of facilities will be offered. Naturally, this is precisely the time you don't need credit or frankly any help from the bank apart from looking after the money. Just think of the bank the way I used to - probably necessary but certainly not helpful.
SMEs drive the economy. the vast majority of wealth generation comes from SMEs not the more glamorous multinationals. Innovation almost always requires funding and surely this is what the banks are for? Certainly the ones owned or part owned by us the tax payer should be. The excuse I have heard most often is that banks are learning from their mistakes and being cautious. But the banking circus did not in any way stem from bad debts with SMEs. Without business finance especially to SMEs, our economy will not recover quickly if at all.
So, let me know. Am I out on a limb? Do tell me if you own a business and the bank understands your business and lends accordingly. A bank which offers a partnership and shares their extensive experience of dealing with business in order to help yours succeed and of course justify their quite ridiculous bank charges on business accounts for small business. I'd especially like to know if your Bank Manager is a critical friend. These are the best friends to have- the ones who tell you not to waste your time with crazy ideas but back you appropriately when good ideas come along. Now my bet is that this web site is not about to inundated by satisfied customers. I would also bet that this posting is not going to endear me to the banks. So, my challenge to the banks is to provide evidence that proves me wrong. I'd be really happy to retract this post. Somehow, I think I'm on pretty safe ground though.