Miller Associates

The Miller Associates Blog - Advice & resources for your business

The Miller Associates Blog

Advice & resources for your business

Tips for Businesses: Understanding loans

High street banks' unsecured loans are only up to £25,000 or £35,000. However, recently one of the High street banks has offered to loan up to £100,000 unsecured (We do not know how easy the process of getting the loan is). One peer to peer lender of which we are broker for can lend unsecured loans up to £500,000.

Growth for your business need not be hard.

Growth for your business need not be hard.

1. Peer to peer (P2P)

We have raised millions (from £30,000 to £500,000) from a P2P lender. The loans could be in your business bank accounts in 3 working days (if all relevant documents required are made available). However, no more than 7 workings days is the norm for them. We are one of the selected Business Champions of Funding Circle. We can get your loan application approved within the same day (provided all required documents are in order and company and person providing the personal guarantee has a satisfactory credit history).

Interest rates depending on the business risk band group and also the duration of the loan can be lower than that of the high street banks.

No embarrassing grilling and a lot of jumping through the hoops via the high street banks or quasi-government organisations (who may require you to attend more than half a day's panel interviews).

Business plans (sometimes pages and pages!) required by the high street banks or quasi-government organisations which can cost a lot of time and money are not needed.

Only personal guarantee by owners of limited companies. No need debenture secured on company's assets like leases which are often of no value to the lenders.

2. A sure way of getting lenders' help when you need help. "Begin with the end in mind."- Covey's 7 Habits of Highly Effective Ppeople.

Plan ahead from day one. Peter Thiel with Blake Masters of authors to  Zero to One: "you can expect the future to take a definite form or you can treat it as hazy uncertain. If you treat the future as something definite, it makes sense to understand it in advance and work to shape it. However,  if you expect an indefinite future ruled by randomness, you will give up on trying to mater it." If you are unable to plan, you are believing in luck - lottery ticket syndrome! Plan your business so that the accounts can show a positive net worth, that is the total of issued share capital and profit and loss account on the balance sheet is not negative (insolvent or bankrupt).

Plan smart. Plan ahead.

Plan smart. Plan ahead.

We believe some accountants are responsible for a lot of failed businesses-the accounts are useless to lenders.

3. Understand your accounts (or at least try to)

We have spent over 20 years coaching senior managers and directors of SMEs to MNCs how to be more financially literate. If you are financial illiterate you will be less able to understand what key levers to pull for business improvement.

The balance sheet:

As mentioned earlier, avoid getting into a situation (if possible) where accounts show the total of issued share capital and profit and loss account (P&L) as negative.

Other debtor: do not have material amounts shown as "other debtor." Sometimes companies have big amounts as other debtors that constitute lending to persons. The business can't be wanting finance if it is able to lend to others or to the owner directors. First, the lending will contravene money lending laws and secondly you can be taxed at corporation tax rate on the amount lent

Further negatives Balance Sheet items, meaning you are financially more risky include:

·         Trade debtors: too large amounts owing in relation to the annual sales means too long to get paid by customers.  

·         Trade creditors: too large in relation to your annual purchases for resale means taking too long to pay suppliers.

·         Other creditors: VAT, PAYE and corporation taxes remain unpaid for a long time

4.Other matters to consider when wanting to access finance

·         Do not bounce cheques. Banks do send texts to account holders when overdrawn, so use the facility.

·         Run your bank accounts (business and personal) properly; ensure most of your sales end up in the business bank accounts. The banks charge quite a hefty commission for banking in cash if you are outside the free banking period, that we understand. If you choose to remain outside the banking system, then very few lenders can help you.

·         Make sure your personal and business credit files are at least fair. It is possible to access unsecured finance if credit files are poor but a guarantor may be required.

·         Right to remain. Lenders would want copy passport as ID check and also ensure that the borrower has the right to remain in the UK for the duration of the loan.

·         If the business only needs £35,000 unsecured loan and you still want to use the one of high street banks and do not mind the hassle, then get a business plan with first 12 months projection of monthly P&L that shows EBITDA less dividends of at least 2 times (this ratio may vary according to business types and banks) to cover total annual loan repayment.