There is one immutable law of borrowing. If you don’t need it, everyone will be falling over themselves to lend to you: but when you find yourself in tougher times and could do with being able to get your hands on a bit of capital, suddenly cash is that bit harder to find.

Banks with money to lend are few and far between at the moment, and if you do manage to squeeze money out of one, you have to face the fact there will be punitive terms and conditions attached. So is there anything you can do to get a better deal?

Brian Capon, assistant director of the British Banking Association, says there is some finance available now: “Banks are increasing their lending to small businesses. Some have retrenched a bit, but the high-street banks have been filling the gap and continuing to lend.”

A report from the Bank of England found that corporate credit availability increased slightly in the first three months of this year and is expected to rise again in the next three months. This is good news, given that they also expect businesses to need an increasing amount of financial support over the next few months.

However, the news is not all rosy. Companies are finding that terms and conditions have got worse. The report said that loan covenants had been tightened by more than expected, which means banks are putting more restrictions on how money can be used. Maximum credit lines had also fallen and In these harsh economic times, just when businesses need loans the most, borrowing money seems to be fraught with more stringent terms and conditions than ever. Sarah Coles reveals that there are always ways to secure that loan — and squeeze the best deal out of banks collateral requirements had increased slightly. To make matters worse, it warned that it expected further tightening in the future. Federation of Small Businesses spokesman Phil McCabe says: “Credit is at a premium, especially overdrafts which is what many businesses rely on.”

But while no-one would pretend there is a fantastic loan out there at a spectacularly low rate, there’s no reason to take expensive borrowing lying down. Capon says: “When you’re arranging a facility you can always negotiate with the bank on terms. They won’t necessarily agree to everything you want, but there’s no harm in trying. Like any business you can negotiate.”

In this negotiation you need to come prepared. Capon says: “A lot will depend on the relationship between the customer and the bank.” Banks don’t make friends because they like you, they make friends because they know you, so make sure they know everything there is to know about your business. McCabe says: “When you approach the bank, have a sound, meticulously planned forward-strategy. That’s worth doing in any environment, but even more so in the current climate.”

Charlotte England, Barclays relationship director, agrees: “Be prepared. Complete an assessment of the current position and performance of the business, and allow the bank to see current performance through management information. Provide detailed budgets and forecasts with a focus on cash flows, know your business and be realistic; come with plans and proposals.”

Capon adds: “Banks will look very closely at a business’s management accounts because they would want to make sure they are able to repay the money. They would ask questions such as: is the business very reliant on one large customer?, and what does the situation look like for this type of business?”

The preparation should also include research into what else is out there. The BBA website, bba.org.uk, has a business account finder facility, where you can compare all the providers and accounts on the market to see what is available from the competition. Capon says: “It can be useful to do your homework so you can negotiate from that standpoint.”

Once you get into negotiations, there are a few things that can work in your favour. It pays to point out your good sides. Capon says: “If a customer runs the account well and within agreed limits, it’s a good sign.” So show a demonstrable record of good behaviour.

There are also things you can do that can strengthen your hand. You can offer security to back up borrowing. Capon says: “If the bank offers you x% over base rate you couldnegotiate for a more favourable rate by saying you own certain things you would be willing to put up as security against the loan, such as the deeds of a property.”

Alternatively you could offer a personal guarantee. Capon says: “That shows the bank your commitment to the business and the fact you think it will work, as well as providing them with security against the loan. It may put you in a position to negotiate terms.”

Finally, ask about official government schemes. McCabe says: “The government has come out with a raft of schemes to make borrowing easier for businesses, including the enterprise finance guarantee (EFG). Enquire about the EFG and if the business is suitable, they will be taken down that route by their bank. The firm needs to be struggling yet viable, which is a difficult definition. We have heard of members who are profitable being turned down for this finance, but it’s always worth asking.”

There are other government initiatives about to come into effect, including the Working Capital Scheme, which provides government backing for loans to sound businesses that otherwise may have been refused because of tight credit lines, so these should form part of your discussion.

Sometimes businesses will be entering these negotiations on the back foot, when they are having trouble meeting the conditions set out in a previous arrangement. In these instances, England says the key is: “Talk early and often to your bank; keep them informed and work together.”

Capon agrees: “If, for whatever reason, you cannot stick to any of the conditions of the borrowing, let the bank know as soon as possible. They will be more amenable to help you if you keep them informed rather than waiting for the bank to contact you — it gives the message that your business isn’t run well enough to pick up on the problem. If you are having financial problems, or you can foresee them coming, talk to the bank straight away.”

Negotiations can be successful, but there is a problem with this approach. McCabe says: “The authority and decision-making power has been centralised and taken away from the regions, which means you may not be able to develop a relationship with the person at the bank making a decision about your borrowing. In reality, once a decision has been made and rubber stamped you are not going to be able to change their mind.”

If you don’t have any luck, there are alternatives. Companies that aren’t an attractive prospect for traditional lending may have more luck with invoice financing, where they borrow against the security of the value of their invoices. England says: “A confidential invoice discounting or factoring facility may be more appropriate.”

If all else fails, McCabe recommends organisations “work on controlling costs and improving payment systems, to solve the cashflow problems some other way”. England agrees: “Ensure that credit control is efficient and focused, review debtor and creditor terms, and consider revising payment terms.”

After all, if you were an individual who couldn’t find a credit card company or a bank to lend you any more money, you’d take it as a sign you have probably already borrowed too much. Instead you’d consider changing your lifestyle, radically, reducing costs and battening down the hatches until things improved again. And in some instances this may prove the best option for businesses too.


GOVERNMENT SCHEMES
Enterprise Finance Guarantee. Launched in January, the EFG provides banks with a government guarantee of 75% of loans to UK businesses. It is intended to help struggling yet viable businesses. Loans can be used for working capital and other business expenditure, which makes them flexible enough to help a variety of recruitment companies.

Working Capital Scheme. Provides a guarantee for up to 75% of the bank’s lending to businesses. The money is available for ‘ordinary risk’ companies with a turnover of up to £500m. The idea is that because the guarantee frees capital on the bank’s balance sheets, it must use an equivalent amount for further lending, thereby making more lending available. The launch was in January, with the first money being made available at the end of March. The first two banks signed up at the beginning of April, and two more are said to be in discussions.

Capital for Enterprise Fund. Generates capital for businesses by exchanging debt for equity. Companies sell a stake in the business in return for a capital injection, so this is only suitable for recruiters willing to part with some of the business. The minimum investment is £250,000 and the maximum is £2m. This has actually been around since 2006, but was re-announced with the other initiatives.


FIVE TOP WAYS TO NEGOTIATE TERMS WITH A BANK
1. Come prepared. Know your business inside out, and what’s available on the market, so you have all the ammunition you need in the negotiation.
2. Consider what you have in your favour. If you have a good credit record, get evidence of it so it can be taken into account.
3. Offer security. Whether you back a loan with assets or a personal guarantee it can secure you more favourable terms.
4. Ask about government schemes. There are a host of these about to hit banks, which may improve your chances of securing finance.
5. Keep talking. The more the bank knows about you, the more secure they will feel in lending and the better your terms are likely to be.