From www.outputmagazine.com -
Four and a half years ago I launched a business that would fill a gap in the trade media and provide jobs to four under-30s who, otherwise, wouldn't have one. From a standing start we made a thin but credible profit in each of our first three years. Proudly, we turned to Barclays to discuss lending options. There began the start of the end of my business.
We're often told how amazing it is that we have made it this far, given that more than half of all businesses fail by the end of their third year. The money we required was to recruit a salesperson and redevelop the website, creating new but vital revenue streams by introducing targeted advertising and subscriptions. By this stage we had bartered for office space on Fleet Street and were ready to surge forward: we had the team, the vision and the visibility to make a go of it.
But instead of lending to us, Barclays turned us away. Actually, they demanded that we rewrite the business plan five times, on each occasion providing a different excuse for why they wouldn't extend a loan to us. I, as a director, do not own security. We are not a manufacturing business. I didn't conform with the requirements of the Enterprise Finance Guarantee; I don't have a good enough credit rating. Finally, and most insultingly, was the accusation that we had not reinvested enough money into the business: that the £10,000 'paper profit' we had made, effectively the only money I could draw as a director, and that my time, sweat and toil to create a business and jobs out of nowhere was simply not worth remunerating.
♦ James Matthews-Paul shares his very touching and all too common story of being denied for a small business loan and being on the verge of shutting down and out of business. After his business made it to the 3-year mark and remained decently profitable, he decided to pursue a small business loan but one of the major problems was that it's nearly impossible to get a small business loan without collateral. And as James pointed on in the article, most business-starting Millennials don't have much collateral. Many times it seems as if the business loans are set aside for those who already have established building. Young entrepreneurs get left in the cold by the tradition lenders, in order to build wealth you need wealth, or so it seems.
♦ There was an interesting note about an option many rejected small businesses probably don't know about in the UK. Small businesses have the option of appealing to the Better Business Finance website and its independent appeals reviewer, Professor Russel Griggs, he actually ruled in favor of 254 out of 965 complaints he received in Q1 2014-15, according to The Independent. So in other words, in more than 25% of the bank loan rejections, they went against their own lending criteria and found a way to say "NO" anyway. Oftentimes after trying to make the prospective borrower give up by have them rewrite their business plan multiple times and jump through hoops.
♦ The number of businesses refused lending, and the rate of businesses that die are strongly correlated. And once the banks are done with your rejection they rarely try to point you in the right direction for loan alternatives. That may change, seeing that banks are starting to make deals with peer-to-peer lending companies in order to fund more loans. But at this point only 6% of all rejected loan cases were directed towards other sources for finding business loans, and only 11% were offered advice or alternative funding. The human element is missing in a major way. You are not a person, you are a faceless entity defined entirely by a sliding scale of numbers that may or may not be good enough for the stuffed suit sitting in front of you depending on what day it is.
♦ James and his team have not given up without a fight, they have turned towards crowdfunding to keep their business alive. They're still raising money to meet their stretch target of £25,000. If you want more information about his business and the progress of his crowdfunding campaign, head over to www.crowdfunder.co.uk/stoppress, and tell him The Lending Mag sent you.