Re-Financial Times

Borrowing money from a bank has never been easy. But the scale of difficulty is definitely cyclical. In 2004, it took a Herculean round of preparation and meetings before I persuaded a bank to back me in buying my business. Indeed, my memories of that year are that preparation was pretty much all I did, other than meet lawyers as the transaction approached.

I refinanced in January 2008, having paid off a lot of the debt. I have long since released my third-party guarantor, a wonderful friend who stood behind £250,000 of the facilities, thus making the entire project possible. January 2008 was a different time in a different world, and the cycle had moved in my favour. Then, I had five offers from banks to refinance me – and not one required a personal guarantee. And that was after Northern Rock had gone bust and the wholesale money markets were in total meltdown.

Even on a personal level, the first half of 2008 was also at the lower end of the difficulty scale when it came to borrowing money. That was the year we bought our house, and I had no fewer than three mortgage offers of £1m, with almost no due diligence done by the lenders.

We were lucky. We completed in September 2008, which was the month the cycle turned again – when Lehman’s went bust. Luckily, we had not saddled ourselves with a £1m mortgage. We were after lots of land and lots of amenities, but found another way to get them. The requirement for our own cricket pitch was met by buying a cottage backing on to the local village ground, and the need for a bar in which to entertain was met by making sure there was a pub next door. My wish for a personal runway, hangars and a ready supply of aviation gas was attained by buying in a village where someone else was rich enough, and interested enough in planes, to have built their own airstrip.

But you can’t achieve the things you want and need in a business in quite the same way. Sure, there are ways to avoid shelling out a fortune, especially when you are first setting up. You can of course piggyback on to other people’s offices and IT, and, these days, telephone answering services and serviced offices can provide the infrastructure that would be expensive to set up and maintain, but our business is 30 years old, with 20 employees. We need to be self-sufficient. And self-financing.

So, five years on, I have just refinanced the business borrowing again. We are talking about a smaller amount of money than in 2008, but this time a guarantor is required and I don’t wish to put up our home (the cricket pitch, pub and airstrip, of course, don’t belong to me).

Thank heavens then for the Enterprise Finance Guarantee (EFG), invented in 2009. Under this initiative the government guarantees 75 per cent of our facilities – we pay 2 per cent a year on the annual balance, and we pay that in quarterly instalments. And, critically, not just on the 75 per cent of the loan that they guarantee. On the whole lot.

The government says that banks are not doing enough to lend to small businesses, yet my experience has been that facilities are always available for viable businesses, but at a cost. Even when I struggled in 2004, I did end up with more than one offer, and took the one that offered the best balance of cost and covenants. Do we need the EFG? I suspect I could have refinanced without it but it made the process quicker and easier. The Funding for Lending Scheme (FLS), the UK government’s initiative that lends money to banks cheaply in order to pass it on to businesses, is to be applauded. But either way, we end up paying the same as if we had borrowed without the EFG.

The truth is that if our clients paid us properly, and on time, we wouldn’t need as much working capital, and barely any bank facilities. But these days clients pay very late, and demand very hard terms. So borrowing money is necessary to allow us to function within those unpredictable business parameters. And it is never easy.

mrsmoneypenny@ft.com