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Long term (lending) relationships

14 February, 2018

Valentine’s Day – the day of romance, big gestures – and busy restaurants! The most important factor in any relationship is that the couple is the right ‘fit’ for each other. Whether driven workaholics, passionate snowboarders, keen to start a family or simply dedicated to exploring the best that London’s night life has to offer, compatibility is key. A rewarding partnership relies on understanding, shared long-term goals, and mutual respect.

The biggest mistake that small businesses make when looking at their external finance options, is to expect a “quick swipe” approach to finding funding. In the same way that you would do thorough due diligence on a new client or supplier and you should be similarly thorough when seeking a finance partner. There are a lot of people out there willing to lend money, but some of the rates are extremely high and some lenders may lack the time, experience and understanding to supply the right finance to support your business. Do your research, listen to testimonials and references and shop around. Bear in mind that the best lender might not always be the cheapest. A small business seeking finance needs a good relationship with their lender – a partnership – so that, if there is a bump in the road, they can work it out together.

Picking a finance partner

First things first – know what you are looking for. Are you looking to smooth erratic cash flow? For a short-term working capital boost for something that has come up unexpectedly and not been provisioned for? Or to fund a large scale new project like expansion, renovations, new premises or even the acquisition of another business?

It is important that you are very clear about what you need, how much, and why. Asking for “somewhere between £100,000 to 200,000” for example does not show strong research and financial planning.

Think about your profile

Once you are clear on this, think about what your finance partner might want to see from you. If you are looking for a cash flow loan, a lender might look for three years’ worth of trading, the latest sets of filed accounts and bank statements. A request for a larger loan or facility would require more in-depth, granular financial and management information.

Generally, lenders are looking for three key financial statements - cash flow forecast, balance sheet and profit and loss account. Have these on hand before approaching a lender – it will save you time, and help ensure that you are able to access funding (and repayment terms) that are appropriate for your needs.

Do not get caught short

Recent third party research we conducted revealed that half of UK SMEs would last less than a month on existing cash reserves. These figures highlight that many businesses take a reactive approach to finance, seeking external help as a last resort.

I would encourage the 39% of SMEs who said they are planning to look for external finance in 2018 to plan as far ahead as they can before approaching a lender.

Seeking a soulmate

Funding is most effective when it is based on a strong understanding of your business, providing a tailored solution for your needs – think Guardian Soulmates rather than quick-fix Tinder dates.

Educate yourself on all the options available to you – this is always the best way to empower yourself.

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Simon Willmett

Simon Willmett

Finance Director

Simon joined Nucleus in June 2015 as the Company’s Finance Director. Prior to joining Nucleus Simon worked in corporate restructuring for 13 years, ten of which were spent at Deloitte in London.