Bank Lending to Small Businesses
Increased high street competition and the de-regulation of financial services are putting new pressures on the modern bank lending to small businesses. Like Loans for women, banks lending to small businesses must equally appreciate less tangible but equally important aspects of a business; for example the nature of it’s product, the market and the entrepreneur. These are explained in detail below:
Bank Lending to Small Businesses must understand the Nature of the product
Understanding of the nature of the product of the business is very important. Whether the business is dealing in perishable goods(food stuff, flowers etc) or un-perishable products. How long the business takes to convert the stock of the product to cash. If the products they deal in have substitutes and are they essential products or what would be termed as luxury products. The products could have a substitute, for example, if the business is dealing in footwear is there other alternatives to the same which can serve their customer.
Bank lending to Small businesses must understand the Market for the product
Understanding the market for the product is very crucial. Consider if the market is local or they deal with the international market. Does the market consist of a certain age group or is it for the mass population. Products dealing in fashion outfits generally target a certain population. Other factors of the market to be taken into consideration will be if the market is expanding or is it shrinking, as the population grows demand for food products increase hence the market increases. The issue of how easy competitors can enter this market is very crucial with a better product at a subsidized price.
Bank lending to Small businesses must have background information on the owner
The background information of the entrepreneur running the business is very key. Consider if he or she is a person of integrity because this will determine whether they will keep their word to their customers, which then results to loyalty from their customers. The length of experience he or she has should also be put into consideration, the longer the experience the more certain the success of the business and vice versa. If the business has a Board of Management – what are their composition. does it have a marketer, a financial expert, a human resource individual. These will be able to add value to the business other than a business where the spouses are the Board members just to meet a legal requirement. Take into consideration the business continuity in a case where the founder of the business dies.
The professional lender therefore must not only be able to read and understand complex business accounts and analyze ratios. Bank lending to small businesses must therefore employ competent resources to get it right.