No one likes paying over the odds.
£50 p.m. for your mobile contract? No thanks!
£1000 for car insurance? Nope!
£3.50 for a cappuccino? You’re having a laugh!
You’re smart – you browse a bit longer, visit the next shop, get another quote until you get a price that represents value for money.
SMEs don’t shop around
But it seems small business owners are not so attentive when it comes to the cost of business finance. HM Treasury revealed in August 2017 that 71% of SMEs only approach one lender for finance. In other words, most businesses just accept what they are given.
Why? Yes, very good question!
We are a nation of experts when it comes to comparing, switching, haggling, bartering and generally shopping around. But it doesn’t take much research to find out why small businesses as a customer segment don’t compare the market. We regularly speak to small business owners who have borrowed from a bank, and the common theme is how painful and time-consuming the application process is.
Applying for a commercial mortgage with a traditional high-street bank could take you anything from 3 to 10 working hours spanning the course of weeks in many cases. This would involve meetings with a bank relationship manager; sending bank statements, financial accounts, ID, and in-depth explanations of your business activities and plans.
So it’s no wonder most SMEs don’t want to repeat the application process with another lender. Apparently root canal treatment is preferable.
How to find the best business finance
So what can small business owners do to get a better deal? Here we let you into 7 top insider tips from a former NatWest business banking Director and BIZL’s founder, Josh Greenway.
1. Play the field
It’s unlikely your bank offers the most competitive rates. Think about it – there are well over 100 SME lenders in the UK, and competition among lenders is at a high. Approach at least 2 lenders. It’s the simplest way of finding the best value deal. At the least you can use a second opinion to negotiate with your bank.
If you currently have borrowing with your business current account provider, get a quote from another lender. Normally once a bank has your business they get lazy, whereas a lender that wants to win your business is likely to offer their best deal.
2. Review your current deal
Has your business performance improved? Shop around now that you are in a stronger position. All lenders use risk-rated pricing models, which mean higher risk businesses pay higher interest to cover the risk of them not repaying. The lower the perceived risk to the lender, the lower the price.
You may be more profitable, your bank account credits may be more consistent or growing, or you may have a better spread of customers. All these things could see your finance cost reduce if you shop around. We have seen a 2% interest rate reduction purely based on improved bank account conduct – that could mean a £2,000 saving p.a. on a £100k loan.
3. Use a broker
A commercial finance broker’s job is to do the hard work for you, finding the best finance and negotiating the best deal on your behalf. We’d say try and get a recommendation for a good one, and make sure they are authorised and regulated by the FCA (Financial Conduct Authority). Generally commercial brokers charge for their services – be cautious of paying more than 0.75% of the facility amount.
BIZL is an online commercial finance broker that compares deals from lenders across the whole of the market. It differs from regular commercial finance brokers in that you can apply quickly and easily online in 5 minutes. 48 hours later you’ll get a personalised selection of the best indicative offers from lenders who have reviewed your application and want your business.
4. Start early
If you’re in a rush you’ll accept whatever you are given. That’s nice for the bank, but not for you! Start applying 3 or 4 months before you need the cash. This means you have time to put your best foot forward and also to compare lenders.
5. Ask for recommendations
It’s worth finding a bank relationship manager who comes with a recommendation. Some will be too busy, some won’t know what they are doing, and for some lending money may be low down on their priorities. But if you can find a good one who is keen to win your business then you’re in a good position.
6. Don’t under-value yourself
If the lender seems disinterested, move on. There will be other interested lenders, and it’s the lenders that are interested who will generally offer the best deals.
7. It’s not all about price!
There’s no point getting the lowest interest rate if the lender doesn’t provide you the amount you need, or if you have to put your home, your children and your soul up for security! Who offers the most flexible terms? Who will lend the most? Who offers the lowest monthly repayments? It may be that not having to put up your property as security is worth paying a bit more for. Or it may be that getting an additional £50k means you’ll be able to expand further which will more than pay for the cost of finance.
It’s easy to start
Whether you are a business with existing finance and would quite like to reduce your cost of finance, or you’re thinking about borrowing a chunk of money to buy your office and want to find the best deal, use these 7 tips and you won’t go far wrong.
There are plenty of lenders out there who would only be too pleased to lend your business some money. Don’t get into the trap of thinking that only your business current account provider will lend to you. Be one of the 29% of SMEs who do their homework and approach other lenders and see if you too could save your business some serious cash.