Going for Gold

          – The rules of getting finance

Salon Smart expert Jeremy Orriss shares his tips on borrowing money – from what banks need from you to how business angels can save the day!

At some time in a business's life it is going to need extra money for something – expansion, refurbishment, or just to get through a rough patch – so its worth knowing how financers look at you so you can prepare what THEY need, not what YOU think they need.

BANKS

Capacity

This is their prediction of your ability to repay and this will be based on your past financial records and their view of the industry at the moment. If you are looking to borrow for expansion or refurbishment they will want you to show them how the money you spend is going to bring in any extra cash to repay them. If it's rough times why are they going to get better? Is it just a seasonal dip you need help with or a long term trend?

Capital

No financier wants to own your business – if they did they wouldn’t be in the money lending business, they would be a hairdresser. So they will see how much you have at risk and they will not want to be in a position where they have more at risk than you.

Character

They will take into account your personality but not how great a hairdresser you are or if you are a nice person. They will want to know what your credit record is like and your past success at running a business in monetary terms.

Collateral

This is the balancing factor for the capital question. If banks cannot see a value in the business they can realise to repay any money they are lending, then they will want to be able to use another one of your assets, normally your house, to be able to repay their borrowing if it all goes wrong.

Conditions

Banks will not only look at your business when they lend, they will also look at the general conditions in the economy around you. If people are spending its easier to get a loan, if times are hard the harder it is to get a loan, hence Mark Twain's famous quote "A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain".
So, to be successful with a bank you need to give them a clear cash flow, which shows where the money to repay the borrowing is going to come from, with notes on why the business will generate that extra money. You have to be able to show them that the business has been successful to date and success means that you have made money and you have to have a good personal financial record. 

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