Last year I started a gardening business. I did ok and put a lot of work into building up a customer base and got quite a bit of work, but gardening work is very seasonal and I didn’t make enough to see me through the winter. The first year was always going to be tough, it’s just one of the realities of starting any small business. Instead of getting into debt I decided to spend the winter staying with family, resolving to take what I’d learnt in my first year (a lot) and come back to it in the spring with a much better sense of how to make it a viable year-round business.
I’ve only been back to it a couple of weeks and I was asked to do a job for which I needed to order a large amount of materials (roughly double the labour cost). Last year I didn’t do any jobs involving material costs just because they tend to be the bigger projects, which I avoided because I was still establishing a group of contacts I could call in for help.
Partly because the reason I got the job was the customer had been ripped off by a cowboy, and partly because I think it’s important to project an image of success in business, I hadn’t asked the customer to pay anything up-front. Unfortunately as both the companies I was ordering supplies from are small businesses themselves, and I’d never done business with them before, they wanted payment upfront.
Frustratingly I was just £50 short. No problem I thought, I’ll just call the bank and ask for a temporary overdraft facility, it’s just a cash-flow problem I’m sure they’ll be able to help. Well it turned out I was wrong. I called the bank and was told that someone from the lending department would call me back. Fair enough I thought, and someone rang me within an hour. I explained that I just needed a £50 overdraft facility for a few days and was told that because there had been very little turnover on the account in recent months that this wasn’t possible. I explained that this was because it’s a gardening business so seasonal by nature, but was still told no. It’s that old banking adage that to get a loan you have to prove you don’t need one.
I would have thought that they would be more willing to help. Don’t the Co-op bank understand that cash-flow problems are one of, if not the most common problem faced by small businesses? As the go-to bank for members of the Federation of Small Businesses you’d think they would, and when you’re only asking to borrow £50 it really doesn’t seem like too much to ask.
This reminds me of a situation that my late father had with Barclays nearly 35 years ago! That was to cover a small portion tax bill at the time, but they wanted security for what was a mediocre sum for only a week.
His building business banking had been with them for 40 years, always cash rich and well established. When he asked for help. Nothing, Nada, Zilch!
All of what you say is true: The upshot is that a personal customer can borrow untold thousands without being questioned, the small business gets the 3rd degree, despite the fact that the business has the better repayment potential in most cases!