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‘Buddy loan advice can help with planning’

Daniel Liberto

The director of Surrey-based Chapters Financial said basic steps, such as asking fellow business owners for advice or having an informal chat with banks before applying, made a massive difference in determining who would be accepted and in procuring favourable loan terms.

Such advice, he added, did not come at a cost and would put SMEs in a much better position in terms of understanding what made banks tick.

Mr Churchouse said: “Most SMEs let themselves down by not putting together a robust plan. I have a group of fellow financial planners who I grew up with and who now run their own businesses, and there is no reason why you cannot share plans on a buddy level to gauge if others think that your plan

is robust.

“You could also have an informal chat with your bank before applying to get a better idea of what it is looking for. There is no harm in finding out more information beforehand, and the more you know the more you can plan in accordance with what it wants.”

But despite encouraging SMEs to be more proactive in the hunt for finance, Mr Churchouse also warned business owners to be wary of the general terms offered by banks before applying, as many were not attractive.

Contrary to popular opinion, he claimed that banks were often “very keen to do business”, but added that the terms may not necessarily make their loans attractive to companies seeking finance.

He said: “Banks are very keen to do business on the right basis, but they are offering a premium on lending and want a security, such as a charge on your house. It is best to be aware of all this before applying.”

In recent months, the government has sought to stimulate SME business lending by increasing accessibility to alternative lenders. Plans to force banks to refer rejected loan applicants to alternative lenders were proposed after research found that most SMEs had only approached banks for loans and were often rejected.

Mr Churchouse said that in theory this was a good thing, but also warned advocates of this plan that alternative lenders were not always renowned for offering favourable terms.

He added: “I do think it would be sensible to refer people to alternative lenders, however, where does that stop? We are going to see some casualties. Some SMEs will find punitive deals from alternative lenders and should ensure they do not proceed unless what is on offer is excellent.”

Philip Haden, director for Worcestershire-based McCarthy Taylor, said: “Increased awareness and education of alternatives would definitely be beneficial, but in my opinion, putting legislation in place to force banks comes with its risk, hence why greater understanding would be needed before such thoughts should be put in to practice.”