Give lenders their due diligence
When it comes to arranging loan finance, you can be sure that lenders will carry out due diligence on you and your business before parting with their money. But, what should you do to check on them?
Russell Snowdon is one of the presenters in Velocity Growth Hub’s A to Z of Growth Finance workshop. He gives us some ideas on how to assess a lender’s financial stability.
There have been a vast number of new entrants to the commercial lending sector since 2007. Russell Snowdon of Independent Banking Consultants Ltd in Bedford, says that it is right to think about their financial stability as you would with any other trading relationship.
“This will be particularly relevant when the borrower’s facilities are revolving, for example an overdraft, invoice finance, or when released in stages, such as property development funding.
“In our experience, it has happened that when presenting a proposal to a lender they are unable to assist because at present their loan book is full – they have run out of money to lend.”
Russell suggests that you consider the following checks:
- The Prudential Regulation Authority at the Bank of England is responsible for the regulation and supervision of 1,500 banks, building societies, credit unions, insurers and major investment firms. The list of banks and building societies on their web site is updated monthly.
- Ask the lender if it is regulated by the Financial Conduct Authority (FCA) – most business finance is not regulated and if they are regulated by the FCA, then at least they have passed its due diligence process.
- Check at Companies House – look at the lender’s published accounts. The lender’s website will provide a variety of information and will give a “feel” for them.
- If they are a member of a trade association, contact the association and ask what due diligence it undertakes.
- Ask the question of the lender – how are you funded? Some will borrow from other institutions and could be vulnerable if that institution were to get into difficulty (think RBS at the time of the ‘Credit Crunch’).
- Ask for a reference – obtain a testimonial from one or more of their clients.
To learn more about the ins and outs of loans and lenders and how to go about arranging finance to make it work for you, book a place on Velocity Growth Hub’s A to Z of Growth Finance workshop in, Silverstone (15 March) or Begbroke Science Park (3 April). You can speak to our SME finance Business Adviser James Stancombe on 0300 01234 35 or email firstname.lastname@example.org.
Independent Banking Consultants has been arranging finance on behalf of business owners for almost 18 years. The business deals with all the major banks, plus over 300 independent and specialist lenders.