Accountants and bookkeepers have really embraced technology and automation. There is a huge amount of useful tech out there that makes painful manual processes redundant, and it’s no surprise that it’s rapidly becoming the norm. After all, why would you hang on to reams of paper receipts when you can just snap a quick photo and upload to Receipt Bank then and there?
This adoption of technology has its downsides too though. Many accountants are feeling the pinch as cloud services replace more and more of their profession, and client expectations are on the rise too. Advising your clients on business finance can be a really good way to give them a great value-adding service that exceeds these expectations.
Here are a few tips on how to advise your clients on business finance, and how to make it part of a forward-looking offering that will keep clients coming back for years to come.
Focus on their situation
Accountants and bookkeepers will naturally focus on the cash amounts involved in a request for finance. But in 5 years of working with lenders across all types of business finance at Funding Options, it has become clear to me that this is often the wrong approach.
Rather than thinking “my client needs a £50,000 loan for two years”, reframe it in terms of the situation, or the problem that needs solving. When we work with businesses, one of the very first questions we ask is “what is the finance for?” If you need £50k to fund a new contract, your options will be different than if you were looking to purchase a specialist piece of equipment, or pay a tax bill. Or maybe a fixed term loan isn’t the right option at all — an overdraft-style revolving credit facility may be a better fit.
This focus on situation should also extend to the way your client does business. Do they get paid on terms via invoice? Do they have a card machine? Do they have a handful of big customers, or hundreds of little ones? These kinds of questions might not seem particularly relevant, but they are in fact hugely important in narrowing down the right option for a particular business.
Rules of thumb
As well as understanding your client’s situation, there are a few other rules of thumb that are useful to understand.
Comparing the loan amount to the business’s turnover and the loan term is a common way of calculating affordability that many lenders use. Generally speaking, it will be difficult to borrow more than 25% of the firm’s annual turnover unless the term is fairly long. For example, £50,000 for 12 months will be a big ask if you’re only turning over £15,000 per month, but it might be possible over a three-year term because the monthly payment would be lower.
It used to be the case that for most types of finance, your client would need at least 24 months of trading history. Increasingly though, there are lenders in the market that will consider 18 months or less, and there are also some product-specific exceptions to this rule. For example, trade finance is normally based on customer orders, which means if your customer is well established you may be able to borrow the money based on their creditworthiness. Generally, though, if your client’s business is younger than 2 years it will have a slightly limited pool of options.
Whichever type of finance fits best, your client’s readiness is one of the biggest factors in how long it takes to get the money. Most lenders will ask for things like recently filed accounts, 3-6 months of business bank statements, and perhaps other financial statements like P&L. Using tools like Receipt Bank can really help on this front — if you’ve got your house in order with clean, easily audited books, it can be relatively trivial to export whatever the lender asks for.
Look beyond interest rates
Finally, as a finance professional it’s natural to want your client to go with the very cheapest option available. But in the real world, there is more to it than the headline interest rate — lenders will look at monthly affordability, and you should also look at your client’s books with that in mind.
For example, would it make more sense to choose a slightly more expensive product in return for a reduced monthly payment? Or perhaps it’s worth paying a bit more in return for more flexibility? It’s worth trying a few different options in a business loan calculator to see how interest rate, term length and monthly payment affect one another — but overall, the thing to remember is that the headline interest rate is only one factor.
These are just a few of the ways you can help your clients find the right option if they’re considering business finance. If you want to go further, services like Funding Options are designed to take the hassle out of finding the right option, and can give you an overview of what’s available in just a few minutes. Find out by comparing your Funding Options now.
Conrad Ford is Chief Executive of Funding Options, recently described by the Telegraph as “the matchmaking website for small businesses and lenders”. Funding Options has been selected by HM Treasury to help businesses find finance when they’re unsuccessful with the major banks, as part of the Bank Referral Scheme that launched in November 2016. @FundingOptions