Finance for Business Expansion

[pete62]

Hello all,

I wonder if anyone has any ideas regarding this little predicament. Beware, I've just read it and it's a bit longer than I first thought it might be.......

I run a modest small business in London comprising 2 companies. We're now entering our 9th year of operation. The total combined turnover of both companies is roughly 100k.

We are currently running at almost full capacity at our present site and have been for some time. Consequently we are looking for an additional premises in which to expand the business. We have identified a suitable site and have prepared a fairly comprehensive business plan with financial projections for the next 3 years. We are anticipating that we would need to raise £80k to refurbish and equip the new premises. Reasoning that I could put up £10k, I decided to apply for a commercial loan for £70k with a repayment period of 8 years through our bank.

The initial response has been somewhat less than favourable. They are suggesting that they would be willing to put up 75% of the worth of the business, which they have estimated at £20k. Now, as this equates to £15k, it obviously leaves us way short.

We have, in our time with the bank, taken 3 previous loans with them. All through the Small Firms Loan Guarantee Scheme. 1 for £13k on startup (fully paid off) and 2 more for £12k and £20k respectively (both roughly two thirds of the way to being paid off). On no occasion have we defaulted or missed a payment anywhere along the line. Consequently, we are at a loss to come up with a reason for why we are now being offered a lesser amount. We don't turn a huge profit, but our finances are stable and the whole reason for requiring finance is because we have hit an earnings ceiling at our existing site, consequently the only way to increase our earnings potential is to aquire a larger premises, (which is why we need the additional capital investment).

Initially I thought that the bank would be the best port of call, as having been with them for 8 years, they would be aware of our history and may possibly take that into account when analysing our circumstances. However it seems that all enquiries of this nature now get passed to a central commercial department that has little contact with their local branches. Hence everything now appears to be done purely on a "ticking boxes" level. I believe our circumstances still qualify us for the SFLGS, but up to now no mention has been made of this.

Essentially I now believe that the first £20k can be raised by myself, which would leave a further £60k. Now if the SFLGS will guarantee 75% of this, as it has on the three previous occasions, this leaves the bank with a risk of £15k. So I am at a loss as to what the problem might be here, as it was quite prepared to lend nearly that amount to a company with no track record at all, when we first started out.

Maybe I'm missing something, and if so, I would be really grateful if someone who has more experience in these matters could give me a pointer or two as to what might be happening here and/or offer any suggestions. Obviously I could approach a different bank. Remortgage? (My other half is reluctant). Search for an investor? Grants? I dunno. I just find it a little frustrating that a stable business that has been in existance for 8 years should seemingly find it difficult to raise the finance to expand.

The experience so far has made me start to question whether or not I could be over-reaching myself, though my (deliberately conservative) cash flow forecasts suggest any loan repayments would fall comfortably within the means of the business.

Any ideas anyone?

[Ian J]

The figures don't look right. The companies have a combined turnover of £100,000, the bank have valued the company at £20,000 yet you are intending to spend £80,000 refurbishing and equipping a factory that you won't own.

[pete62]

Originally Posted by Ian J

The figures don't look right. The companies have a combined turnover of £100,000, the bank have valued the company at £20,000 yet you are intending to spend £80,000 refurbishing and equipping a factory that you won't own.

Thanks for your interest Ian,

A conservative estimate for turnover at the new premises would be in excess of £200k (+£100 k from the existing site, which we would be keeping for at least 2 years). Therefore, with an investment of £80k, we would stand to bring in £300k in total. We are currently achieving 95% capacity at our original site and have been for 2 years or more. We are are basing the turnover figures on running at 65% capacity at the additional site. We have no major competitors in our immediate area.

The large amount required for refurbishing the new premises is primarily due to the nature of the business. Set up costs can appear relatively high, but expenditure thereafter is minimal. Due to the prohibitively high purchase costs of the type of building in question, we are looking at taking a lease until 2020.