Why banks see you as too risky
John, the owner of a graphic design company, finds himself in financial trouble.
He expanded his business too quickly, investing heavily in new premises and equipment, but new clients haven’t materialised quickly enough to justify the expense. He’s confident they’ll arrive after a major marketing push – but in the meantime, he urgently needs cash to keep the business afloat and fund the advertising campaign.
What are his chances of securing a loan from the bank?
In my experience, they’re slim.
Time and again, I see business owners approaching banks for loans at the last minute, when they’re already at crisis point. This is a significant mistake because it sends all the wrong signals, giving the bank the impression that you’re desperate and not in control.
When banks perceive a business as risky, they either decline to lend or charge higher interest rates to mitigate the risk.
That’s why forward-looking financial reports are crucial.
A well-run business can anticipate financial challenges on the horizon through accurate financial forecasting. Trouble shouldn’t come as a surprise.
Take John’s case: a proactive accountant would have helped him understand the financial implications of his expansion. He would have been able to see several scenarios, from new clients arriving immediately to slower, medium-term growth.
With these clear projections, John could have made a more informed decision about whether to go ahead with his investment. He would also have seen exactly how much he needed to invest in marketing – and how quickly he needed results.
And if he had decided to proceed, even with the knowledge of 6-9 lean months ahead, he could have approached the bank in plenty of time.
Armed with detailed, accurate financial reports, he would have shown how long the difficult period might last, how he planned to navigate through it, and when and how he could repay the loan.
This approach makes him a far safer bet for the bank. By being proactive and demonstrating solid financial planning, he would come across as professional and reliable, building confidence with the lender.
That’s where we come in. At Insight Associates, we specialise in helping companies with turnovers of £1 million and above to professionalise their financial management.
Not only do we provide timely, reliable insights into your current financial situation but also projections that show you how your business could perform months down the line.
Having these forward-looking reports in hand allows you to make decisions with greater confidence, knowing you’re on firm financial ground. If necessary, you can secure loans on better terms, avoid nasty surprises, and steer your business more effectively through both opportunities and challenges.
Is this the kind of financial management you’re looking for?
If you’d like to discuss how we can support you in taking control of your finances and planning for the future, let’s arrange a consultation.
Please get in touch by email to garry@insightassociates.co.uk or call our office on 01279 647 447 and let’s explore how we can help your business thrive.
Warmly,
Garry
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