Helping readers decide which high street banking proposition best suits the needs of their company, we unpick HSBC’s offer for small UK business owners.
To identify the secrets to obtaining finance from HSBC, we spoke to the lender’s head of business banking, before one entrepreneurial customer explains what kind of service fellow founders can expect from the bank.
By the end of 2016, the bank’s official lending figure to SME customers reached £5.5bn, and HSBC claims to approve 91 per cent of its loan applications from small business owners.
Meanwhile, in June 2017, the bank announced a new £10bn fund, distributed across all UK regions, specifically to finance loans to entrepreneurs.
In particular, the bank has targeted financial restraints preventing would-be exporters from trading overseas, campaigning for greater government support in this area for small firms.
With a seemingly high lending rate, we spoke to James Cliffe, head of business banking at HSBC UK, to find out where the remaining nine per cent could be going wrong, and what it takes to demonstrate the potential of a company to an HSBC loans advisor.
What the bank says: James Cliffe, head of HSBC business banking UK
Is the business plan the most important thing to an HSBC business banking advisor?
“It’s part of what we look at, but we also look at the experience of the entrepreneur or the management team. We look at the external environment, and importantly, the cash generation of the business.”
Would you move forward with someone who hadn’t presented their plan well?
“Absolutely. What’s important is the substance of the business proposition. Some people are very good at presenting that in a document, other people bring it to life verbally.
“What’s crucial is that an entrepreneur can show they’ve got a real handle on their business – the market, the conditions, and the risks involved. There are a variety of ways they can get that across to us.
“We are starting to see more entrepreneurs creating videos around their business. That’s very useful to us because it really brings to life what they are about and what they do. To see it in action, even in a video, is great.”
Should the business owner make a clear and convincing case for how the loan will be repaid?
“Yes. If we can’t see where the cash flow will come from – and be confident the business can sustain the cash flow – we can’t approve the loan. If the entrepreneur can’t evidence this, then it’s not something we can support. In that situation, we often advise the customer to get equity.”
Do you like to see applicants reduce risk by putting equity into the business themselves?
“Yes, for two reasons – it reduces the risk for the bank, but it also evidences the entrepreneur’s commitment to the venture.
“However, we do lend to business owners that don’t have the security to offer equity but do have a viable business. In that instance, we will use the Enterprise Finance Guarantee Scheme (EFGS), which is ideal for a business without many assets.
“Under the EFGS, the government provides a guarantee to the bank for 75 per cent of the loan. That is our security.”
Can applicants expect a tough Q&A?
“They can expect us to ask them about the risks within the business and the plans they’ve got to mitigate those. How achievable growth rates are, for example. If we graph a set of projections that look like a hockey stick, the customer has got to be able to explain and justify where they are getting the growth rates from.
“They can also expect us to ask about key dependencies. If they’ve got a lot of their business with one key customer, for example, how will the business survive if something happens to that contract? Those are the kind of things we will ask.
“Its two-fold – firstly, the money we are lending is our depositor’s money. Secondly, if a business gets into difficulty, that’s the worst possible outcome for the customer.
“While for us it’s a loan, for a business owner its often their family’s source of income and security. When we say no, it’s because we don’t think it’s the right level of risk for the customer to be taking.
What sets alarm bells ringing for an HSBC business banking advisor?
“Being unable to substantiate claims in business plans. Also, widely optimistic forecasts, lack of relevant experience and track record. And, somebody who isn’t open with us and we feel is holding back information.”
Sign up to our newsletter to get the latest from Business Advice.