Q&A: Stating your case to the bank

Approaching the bank for a loan, overdraft or overdraft extension is commonplace for many small businesses. Planning and preparation can help

Ross Keaney of HBOS Bank of Scotland Business Banking, who provide advice to Halifax branches, explains the best way to approach banks for money.

What do I need to know before I start?

RK: "Before the meeting with your bank you need to know exactly how much money you need. You should also have an idea of what sort of loan suits you best and how much you can afford to repay each month."

What should I ask for?

RK: "Don't make the common mistake of arriving and just asking 'how much are you prepared to lend me?' This looks unprofessional. Borrowing too much will cost you unnecessary interest. Borrowing too little may mean you need to go back to the bank. You need to show that you have allowed for the unexpected. Work out what you need, then add a contingency amount of 10 to 20 per cent. Make this the amount you ask for."

RK: How much can I borrow?

"The amount you are allowed to borrow and the interest rate at which you have to repay it depends to some extent on how well you can provide security for the debt. The most common form of security is property you own, and you can usually borrow up to 70 per cent of what it's worth.

"Sole traders are automatically liable for their business debts. As a director of a limited company, you aren't usually liable for debts against the business, but you may be asked for a personal guarantee. Start-up businesses that cannot provide enough security might be able to get a Small Firms Loan Guarantee for loans of up to £250,000.

Do I have to explain why I need the money?

RK: "Yes. If you show how you will use the money, your bank manager can advise you of the most suitable type of finance for your firm's needs."

Do I have to show the bank my business plan?

RK: "Your business plan is vital. Keep it up to date. The plan exists to give you and the business credibility as borrowers, so it should show your business aims and objectives, that you understand your market and your strategy for the next one to three years. Don't be tempted to exaggerate - it will damage your credibility."

What key documents should I produce?

RK: "The bank will want to see how much you and your firm are worth. Get together the latest figures to reassure the bank about your viability and control over business finances. Be prepared to provide details of cashflow forecasts, current and previous financial history, as well as information about your current assets and liabilities. Your financial forecasts should show where you expect the repayments to come from."

Do personal impressions count?

RK: "Yes. What you wear doesn't count, but evidence of your business skills is important."