Looking for business funding or just testing? (is your business investment ready?)

Precis of a telephone conversation yesterday:

Customer: I'm looking for £50,000 to finance scaffolding, but no-one will do scaffolding at the moment.

Me: Yes, scaffolding is tricky, there are lenders out there who will do it, but they need to be comfortable that the credit is good.

Customer: So you can do it?

Me: Yes, if the underlying information is strong enough.

Customer: So what do you need to see?

Me: I need [list of underwriting requirements for unsecured lend]

Customer: What do you need all that for?

Me: [explain underwriting process]

Customer (clearly frustrated): So If I get that information you can do the deal?

Me: If it all stacks up, yes..

And so the conversation continued to circle around the actual provision of hard facts, with a slightly uncomfortable reliance on promises and assertions.

On the back of this - far from unusual - scenario, I did a thumbnail analysis, and concluded that 70% of enquiries fail to result in information being supplied. I spoke with a good friend in the factoring industry who opined that, in his case the figure was closer to 90%, so it is by no means isolated to lease broking.

Put into context, this is almost entirely information that most business owners or FDs should have at their finger-tips; we aren't asking them to prepare business plans nor, in most cases, projections.

We can only guess at reasons, but with many years' experience I would put this down to one of 2 factors:

The information is bad, so they don't want to provide it:  Fully understandable (interestingly pre-crunch we had many customers who would cheerfully send the most appalling information then act surprised when it was questioned) but I am always at pains to stress that underwriters do understand recession,and that they don't necessarily expect positive trends, nor even  profit - they are looking to understand where the business is now and where it is going to.

The customer isn't fully engaged, but is just testing the water: In my opinion, the more likely in most cases. As a broker I rely on long-standing contacts - in some cases contacts of 20-years plus. I am very happy to test the water and have general discussion on the assumption that we will talk again when a real need arises - feel free to tell me you are just exploring and we can have an open chat!

This brings to mind the recurring stories about how businesses are afraid to apply to their banks for funding for fear of losing their existing facilities. Really? Your business is thriving and moving forward, but you are frightened of losing your facilities?

So, what is the point here? well, fundamentally it is about having some clear goals and definitions; by all means test the water, but you cannot judge any situation by a response based on insufficient or indeed, misleading information.

Most important, if you actually are looking for business funding, then you must be prepared to back up your application with solid, current and coherent information. Obviously what will be read into that information will depend what you are looking for - if it is a refinance proposition there will be some assumption that business is tough, whereas if you are looking to open new branches, we will need to see that your current business is working.

VCs and equity funders have long used the term investment ready - perhaps a similar criteria should now be applied to applications for finance 'Why will a financier want to invest in you?'.

I've been in the game a long time, give me the facts and I will provide honest feedback