The Bank of England has announced that the closure of its Funding for Lending scheme for SMEs has been deferred. How might this help your business obtain additional finance?
At the end of November 2015, and with the backing of the government, the Bank of England extended its Funding for Lending arrangement for banks. It was due to end in January 2016 but will now run until 31 January 2018, albeit on a scaled down basis.
What is Funding for Lending?
Under the scheme banks are able to borrow money from the Bank of England at low rates on the proviso that they use it to lend to small and medium-sized businesses. Plus there are new and potentially helpful provisos that will help businesses find a competitive loan.
Until now the major banks and lenders, who traditionally apply tougher terms on lending, have had greater access to the money available under the Funding for Lending scheme. However, during the extended period, smaller so-called challenger banks are to be given greater access to the Bank of England funds. This should make the loans more competitive and, hopefully, cheaper and easier to come by.
Finding a lender
Not all challenger banks will have access to more funds during the extension period. It depends on the amount they have already drawn from the scheme since 2013. You can find details of all lenders involved in the scheme on the British Business Bank website (see The next step ).
Just because a bank or other lender is obtaining cheap funds from the Bank of England it doesn’t mean that it will throw cash at your business. In fact, new EU regulations were introduced in April 2015 to make lending to businesses less risky. More than ever it’s necessary to go about applying for a loan in the right way. Tip. If you want to increase your chances of a successful loan application, prepare a business plan explaining why you need the money and how it will be used.
What’s the plan?
A business plan for borrowing purposes must be tailored to your business, but it should include:
- a summary of what the loan will achieve, e.g. expansion, consolidation etc.
- an outline of what your company does and its place in the market, i.e. does it have competitors
- copies of the last three years’ accounts highlighting key figures such as profit ratios
- a cash-flow report for at least two years
- a financial forecast, i.e. profit/loss and company net value for the next three at least.
Expert help. If you’re unsure how to prepare a business plan don’t try to wing it, the lender will probably find you out. If you’re turned down by a lender it can affect your credit rating and so reduce your chances of getting a loan. If in doubt ask an accountant for help to prepare a plan. It won’t be free, but it will greatly enhance your loan application.
Smaller and more competitive lenders will have access to Funding for Lending cash meaning loans should be easier to come by. Check the British Business Bank website for participating lenders. Improve your chances of a successful loan application by providing prospective lenders with a detailed business plan.