How much will the bank lend me

[ajdriver]

Hi,
I have an idea for a business that will be a partnership. If it is to go ahead, it will be launched in about a years time. What percentage of the start-up costs do banks typically lend? I have no previous business experience and neither will my partner, we will both be about 20 at the time. Neither of our financial circumstances very good. IE both have small debts. I am well aware that my bank will lend me £6,000 as a personal loan without asking any questions. Any guesstimates on how much they would lend me, providing the plan is well written and they like the idea?
Thanks
Alan

PS, does the government still give grants, or low interest loans?

[Ian J]

Depending on the sums involved and whether or not the bank likes your idea they may well match whatever you have put in on an unsecured basis but could go higher with the benefit of security.

Depending on what you wish to do, other avenues worth exploring are grants from the Prince's Trust or a bank loan under the Small Firms Loan Guarantee system.

[Rob]

Alan,

Based on what you have said about lack of experience, financial position etc, I think you are going to struggle.

However, you may have a great idea so it's worth a try. To give yourself the best chance, prepare a Business Plan. Go and see your local Business Link where you will get some useful pointers - www.businesslink.gov.uk

Given your age I would definitely try the Princes Trust, as mentioned in the previous post. A grant from them is easy to get matched by a Bank and they will feel more comfortable supporting you in view of the mentor scheme the PT run. For more information go to www.princes-trust.org.uk

Best of luck

[gj]

I would definitely go and talk to your local business link as Rob suggests. They will give free advice and will help you to ask yourselves the key questions to determine whether you have a viable business.

My recent experience with the banks on startups is that they are reluctant to lend more than 50% of the required finance. They will often ignore money already put in - eg if you have invested £5,000 so far and the business needs another £20,000, they would expect you to find £10,000. All of this assumes that they regard it as a viable business proposition.

The small firms loan guarantee scheme is used where the bank thinks it is a good banking proposition except that there is no security. It provides some protection for the bank (75%), for the payment of a premium by you. They would nevertheless require investment by yourselves (or from family, friends etc. as mentioned above.

Regards


Graham

[ajdriver]

Thanks for your help guys. I didnt realise that i had any replies! the emails to notify me had been going into the junk folder.
Much appreciated.
Alan

[New Age London]

The bank may well lend you all the money, in my experience. Just be careful. I borrowed what I thought I needed - £3000 to help finance my new venture, which depended on a business associate to keep delivering what they were doing. The associate pulled out and went all nasty on me, leaving me with a deficit of £800 a month for 6 months, until the business recovers according to my plans. If I had the sense, I would have borrowed more from the bank, but now I am carefully managing creditors and dodging financial ruin, which takes up so much time on a daily basis that it is affecting the volume of new sales. Luckily, my other work is seasonal, and what I borrowed the money for will be in place by February next year, so even though I may end up with a few CCJ's, my business will survive and get stronger. Needless to say, my business bank loan is one of the first things that get paid on time.

[ajdriver]

I didn't think they would lend me the full lot. I would like to keep it as a minimum, but unless I quit uni for a year I will not be able to provide anywhere near enough.

[gj]

Roughly how much do you think you need? The banks like to see that you are making some commitment to the business if you are expecting them to as well. If it is small and you have little, they may be prepared to accept that you are putting in what little you have. Could you get friends or relations to put up any of the capital, or a guarantee to the bank.

These are all options, but remember, if the amount is small, the bank makes little out of it and they are there to make a profit, so they will not want to take a risk disproportionate to what they make out of the lending!

Regards


Graham

[ajdriver]

I expect to need about £11,000 + 2k more for running capital in case its a slow starter and to live off.
Also I will probably think of more things along the way, so add another £1000 for things I have not yet taken into account for.
This does not include legal fees (written partnership) but that does not need to be done straight away, right?
Cheers
Alan

[gj]

Hi Alan

My experience says you might need to think £20k based on your figures - lots of things come out the woodwork, things take longer to get going - so you need to spend more on promotion, marketing etc.

Re the partnership agreement, I would suggest you do get this drawn up early - better to get things clear from the outset before you both commit too much, than to get down the road a bit and then be struggling to reach an agreement on things because you both had different understandings of what the arrangement was!

Also, these things have a nasty habit of not getting done at all - we will do it later, we will do it later etc.

Do it now and be done with it!

HTH

Regards


Graham

[ajdriver]

thanks for the advice Graham,
any idea how much it costs to get the agreement made. Presuming we draw up the details, how much to make it legal?

[gj]

Hi Alan

My experience is it is a few hundred pounds.

However, I am looking at an affiliate arrangement with Net.Lawman and I have to say that their products look like they would do the basic job and cover things far better than a loose agreement you might draw up yourselves. Cost is around £34 plus VAT

Link is here http://www.netlawman.co.uk/doc/partnership-agreement.php

There are other similar facilties available online.

See what you think - even if you spend the £34 to clarify your thinking and then go to a sloicitor with that as a draft, you won't have lost anything.

HOWEVER, before you do anything, just think about whether a limited company might be better. I have just produced a scedule for use by our local business link which summarises the tax benefits of operating through a limited company. I could email this to you if you like.

Regards


Graham

[ajdriver]

Graham
Thanks for the link. To be quite honest I have not really considered a limited company. On the surface it seems over complicated for 2 men and a van. But I am very willing to listen to any suggestions, advantages, disadvantages etc. If you could send me the document that would be great. My email address is
alandriver15@hotmail.com
Cheers!

[gj]

Ok - schedule will be emailed from my office email tomorrow

Get back to me with any questions once you have had a chance to read it


Graham

[ajdriver]

THanks for help on this so far guys, and im sorry to bring this thread back out the wood work. BUT

Hypothetically speaking.
If the bank liked my idea, and I hope they do.
And I need to raise £11,000 to start up, I contribute £2,500 so does my partner, and I get a grant of £1,000 which leaves me £5,000 short. Do you think this will be hard to borrow? I could secure £1,000 - £1,500 on a vehicle and maybe £400 on a laptop (taking into consideration depreciation) But most of the cash is for intangible items such as advertising, insurance, etc.

cheers

[Alpha]

Alan

If you have put together a well reasoned business plan which has shown that you have put a lot of thought into your business proposal the finance provider will be more inclined to look favourably upon your loan.

If you have personal assets to put as a guarantee then it will improve your chances .

If the banks are your first choice provider you will usually have a better chance with the bank if you have banked personally with them for a number of years and have a good track record.

There are banks that will take on more risk but you will pay for it(One bank I know has given a business a loan when all the figures presented to it would scream that no further lending should be given. They did however charge a substantial insurance fee which was also added to the loan.)

Finally although you are still looking at £11k please take note of what the others have posted above. By looking critically at your business plan you should be able to come up with worst case, best case and most likely scenarios. These will show you what level of funding you should go for.

There is nothing worse for your credibility than asking the bank for a level of funding and then asking for more in a short period of time because things didnt quite turn out as you 'planned'.

[Rob]

Alan,

You are putting almost 50% of your requirement into the business so this looks to be a 'bankable' proposition. I think you stand a reasonable chance.

Now Alan, you posted your initial question in early November. Time to bite the bullet and ask the question of whether you'll get a bank loan to the guy who has the real answer - the Bank Manager!!

Get your plan finalised; pick up the phone; make an appointment; and sell yourself and your business. Taking this step is the only way forward now!!

Best of luck