Getting finance during a recession
With banks increasingly tightening their belts, securing finance is becoming increasingly difficult. Follow Startups’ fool-proof guide to increase your chances during the downturn.
Getting a loan is still possible during a downturn
If your business is well-run, has generated cash, and has a management team with a decent understanding of how the company operates, banks will still be willing to give you the time of day. “If you’re good, then lending against a business which is making money is not going to be a problem,” says Steve Everhard, of accountancy firm Grant Thornton.
Get your house in order before you ask
It’s more important during a downturn to make sure you understand exactly where money is coming in and going out, so you can make the changes you need to well in advance of any troubles you may encounter. Part of this will be making sure you communicate with your bank to keep them abreast of any difficulties. “If you call your bank up at half past two on a Friday and say ‘we need some money otherwise we’re going out of business on Monday’, the chances are you’re not going to get an awful lot of help,” says Everhard.
Ask yourself whether you really need to borrow
A downturn is not the best time to think about expansion, so if you can put it off for a while, do. On the other hand, don’t try to cut down too much. “Don’t go hurtling through your wage bill with an axe,” warns Everhard. “Losing all your key people will save you money, but it’s also going to corrupt your business.”
Brand new businesses will find it harder to get funding
During an economic crisis, banks are far less willing to fund new start-ups, generally because they are seen as higher risk. However, Everhard says there are still some loans available for new businesses, as long as you have a sensible proposition: “You have to be very much on top of your business plan. Unfortunately, if your business plan is about taking on some massive corporation with a great innovation, you’re probably going to struggle.”
Look for alternative sources of finance
If the bank won’t lend to you, chances are you know someone who can, says Everhard. “If you can find private investors for the early stages of your business, it’s a much more sensible way to proceed. You’re not loading up the business with debt, you’re giving away some of the equity, and it focuses you on making sensible decisions because you’re spending the money of people who you may one day want to have dinner with – which always focuses you a lot more.”