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Approaching the Bank for your Startup Funding

Carl Reader

Carl Reader, author of The Start Up Coach, co-owner of and co-founder of

Despite the generally gloomy news that the media circulate, all high street banks are willing to lend money to start ups. In fact, it’s easy to forget that lending money is one of the reasons that they are in business!

Even though there is money to lend, and a variety of government and bank led initiatives (such as Funding for Lending, Enterprise Finance Guarantee Scheme, and various industry funds), it’s important to approach the bank in a professional and knowledgeable fashion. Make sure that you fully understand the detail of your business plan, and can answer any questions confidently and consistently.

As a rule of thumb at the time of publishing, banks will typically meet 50% of the funding requirement for a general start up, and some banks in the franchising sector will extend to 70% for a recognised, established franchise. There are usually arrangement fees in addition to interest, and you must also consider any covenants (restrictions and/or requirements) that might be placed on you whilst the facility is in place.

Now, probably the most nerve-wracking part of the whole process of starting a business is pitching the business to funders – in part due to television programmes such as “Dragon’s Den”, where the would-be investors are portrayed as, well, dragons. In reality, although you must expect your ideas to come under scrutiny, and be both prepared and willing to say what needs to be said, the actual meetings with bank managers or funding organisations will be more relaxed, without the formal pitches, and will be a two way process.

There are however some ground rules that you must be aware of. Firstly, it is vital that you know your business, and your business plan, absolutely inside out. Be confident, show your passion. They will expect you to have a grasp on the financials of the business, and to understand exactly what makes money and what the potential warning signs are. You should have your finger firmly on your business’s pulse here anyway, but make sure you are fully prepared for whatever they might reasonably want to know. Answer clearly and confidently – don’t waffle.

They will also expect transparency and honesty from you. If there is a major weakness in your business, for example a strong competitor or a technological advance that you are not prepared for, you should be honest about this, and explain how you would look to overcome this weakness. Being upfront and honest about any challenges you may face shows that you and your business are prepared and realistic, and that your plan is carefully considered.

Since the credit crunch, there have been changes in how the banks are set up, and how they motivate their teams. There are also more modern banks which purport to have local decision making authority, and are aimed to help small businesses. In general however, you would expect the following process:

  1. You would meet with a local bank manager, the level of the banker will depend on the plans of the business (Banks are often divided into small business, commercial, and corporate levels, and the managers in each level are specialists in businesses of that size).
  2. Once the plan is prepared and the pitch made, the bank manager will review the plan, suggest amendments and make a proposal to the underwriter, together with a case highlighting their support of the plan.
  3. The underwriter will reply with a decision.

Whatever your business, it is likely you will need investment. Making sure you are prepared, professional and realistic can only go in your favour.

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