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What the banks require to open a business account or to secure a start-up loan

Find out about the guarantees you will need to give the bank

When you open an account, the bank will want some references – even if you don't want any credit. If your business operates as a partnership, the bank will also want details of each partner's authority and a copy of the partnership agreement.

If you have set up as a company, the bank will need some more information. Typically the bank will want to see the certificate of incorporation, the memorandum and articles of association. In addition, the bank will usually have a draft resolution that must be passed by the company and gives instructions about opening the account.

If you want to use the loan for startup finance, you will need to present the bank with a detailed business plan. If you can, try and find your local business link or enterprise agency for advice beforehand. If not use family and friends to practice your presentation.

It will also be very hard to borrow from the bank without putting in some of your own money. Anyone considering lending to you will want to see that you have some of your own money on the line. The amount will vary in each case. However, the golden rule is enough to hurt.

The British Banking Association offers this list of key factors that a bank manager will be looking for:

Character. Is the customer trustworthy with a clean credit record?

Ability. What experience does the customer have in this line of business? Has market research been done? How good is this product?

Margin. How risky is the proposal and what interest rate would reflect this risk?

Purpose. What will the money be used for? Would a different type of finance be appropriate? Are there any government schemes to help?

Amount. Does the amount seem too much or too little? How much is the proprietor putting in themselves?

Repayment. Will the business be able to generate enough money to repay the loan and interest?

Insurance. If it all goes wrong, is there an alternative source of repayment?

This last clause refers to security. Banks generally want to link the loan to an asset that can be sold if the loan can not be repaid. This may take the form of property or a debenture – which allows the bank control over the business' assets, including any outstanding debts. However, this can only be applied to a limited company, see what form your business should take.

If your business does not own premises or can not offer a debenture, the bank is likely to look for personal guarantees or other investments you may have, such as stocks and shares. This may mean guarantees by third parties or a charge over your home and investments.

The Small Firms Loan Guarantee Scheme is a government-run scheme offered by the Small Business Service (SBS), designed to help firms with viable business plans who have failed to get a loan because of a lack of security.

The SBS will guarantee loans of between £5,000 and £100,000 (£250,000 if your business has been trading for more than two years) over a period of two to ten years. SBS will guarantee 70% of the loan (85% if your business has been trading for over two years) in exchange for a premium of 1.5% of the outstanding amount of the loan, or 0.5% on fixed rate loans. Eligible companies must be UK based and not have a turnover of more than £1.5 million (£3 million if a manufacturer).

Only certain lenders participate in the scheme and there are restrictions that could exclude certain businesses. For more information and a list of participating lenders, contact the SBS Loan Guarantee Unit on 0114 259 7308/9 or email

It is this requirement for security that many small businesses believe holds them back. The Institute of Directors found in a 1999 survey of its members that the need for collateral was a problem particularly for high tech companies. The Bank of England also is studying this area and working with banks on trying to provide better financing solutions.

Andrew Foyle, chief executive officer of Argo Interactive, explained that when he decided to set up a software company he avoided the banks. “I knew from bitter experience that trying to approach a bank as an intangible asset company would be very, very difficult.”

Technology companies tend not to fit into the conventional business model used by banks to decide on funding. In addition, they are unlikely to have the security required to borrow. A local small business manager, particularly in an area like Chichester, is more likely to deal with hairdressers, shops, farmers or other small businesses rather than technology businesses, added Foyle.

However, banks are trying to remedy their bad image with technology companies. Most of the high street banks have set up specialist units to deal with this sector.Natwest, for example, offers a number of business appraisal services from its innovation and growth unit. The business appraisal service can cost between £1,000 and £4,000 and offers input from independent technology and marketing consultants to look at your business plan for specialist help in this sector.

Typically the bank will want to see the certificate of incorporation, the memorandum and articles of association.


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