A Blog on Fnancial News, Insurance, Resources, Debt and Related Topics

HIGH STREET BANKS

The high street banks are the most obvious source of loans. Any local branch should be able to provide further details and itemize the information they will require from you before finance will be granted. In general, banks are the most appropriate source of funds but if you do use them always contact more than one because their interests rates and terms vary. In recent years the commercial banks have become much more flexible and positive in their lending policies to small firms. They used to lend only relatively modest amounts to small businesses and usually over time periods of less than five years; now they are increasingly competitive. Under the right circumstances most banks are prepared to lend for up to 20 years. They will consider lending almost any sum of money provided that suitable security is available.

MERCHANT BANKS

Merchant banks provide long-term finance and capital for growing businesses. Unlike the high street banks they do not provide overdrafts or bridging loans. The major part of their business is with term loans and mortgages of between five and twenty-five years. With adequate security there is no real limit to the amount they will lend, but their minimum is usually around £50,000. Because of the larger amounts they deal with, merchant banks tend to lend only to companies or individuals with a proven track record. They usually insist on a thorough look through your accounts. Your track record will determine how flexible the merchant banks will be. They will usually lend up to 75-80 per cent of the property’s value. One drawback of many merchant banks is that they often lend only on an equity basis, taking shares in your company in return for the capital they loan.

INVESTORS IN INDUSTRY PLC

Investors in Industry (previously known as ICFC) is a merchant bank type of organization owned by a consortium of high street banks and the Bank of England. Their head office is at 91 Waterloo Road, London SE1 8XP; tel: 01-928 7822. Their particular interest, as their name suggests, is in industrial lending. Investors in Industry pride themselves on their assistance to small private companies. In 1985 two-thirds (£227m) of their new investment went to small businesses and over half of the year’s total investments were in amounts of £100,000 or less. Their emphasis on lending to smaller industrial companies can sometimes make them more responsive than merchant banks who have a much wider-ranging investment policy.

BUILDING SOCIETIES

Some building societies, predominantly the smaller ones, will give mortgages to purchase industrial and commercial property. Indeed, many societies are keen to expand their lending in this area, so this may be a growing area in their future activity. Some of the larger societies offer private purpose loans which, as their name suggests, can be used for any purpose including the purchase of premises for your business. The type of security required is variable, but if a large enough proportion of your household mortgage is ‘paid off this may satisfy their requirements. You can use a mortgage broker to identify the building society whose terms best meet your needs. The broker’s service should be free. Avoid paying any ‘facility fees’.

LOCAL AUTHORITY SCHEMES

Many local authorities, anxious to encourage local economic development and employment growth, offer loans and in some cases grants to help small businesses move or purchase premises. As the availability and terms of these grants and loans varies between authorities you should contact your local authority’s industrial or economic development officer for information.