[The story below is true – but the name of the people and the town are omitted to preserve their privacy.]
I have a close friend who was, for many years, the IT Director of a high-street name. In 2009, in his early 50s, he decided to quit the big smoke, and help his wife who was setting up a business close to where they live in Hampshire.
They were projecting a turnover of about £200k in the first year, and while they were going to be profitable, about 2 years into trading, it became obvious that they were going to need a bit of help with cashflow for about 6 months, since they were expanding faster than they’d expected, and didn’t want to be turning away business.
The obvious solution, they thought, was to ask for an advance against their house. This was 2009, so not the peak of the property boom, but they’d lived there a while, and the house was worth way more than their mortgage.
They were rejected, because they had a ‘problem’. The problem was that, 9 years previously, they had paid a credit card bill 2 days late. This was enough for the bank’s system to reject their application. The banks were having trouble selling on debt to the markets, and were worried about bank runs expanding beyond Northern Rock to them… so it seemed that any excuse to not lend was good enough.
In the end, they got the cash they needed from a family friend, and the business is going great guns, with (two and a half years on) a great local reputation, a strong repeat customer base. In August they moved to a larger office in the centre of town, so they could fit in their growing numbers of staff.
The story could have ended so differently. For the sake of a few tens of thousands of pounds that their bank refused to lend, they might so easily have not been able to get going. Not only would it have hurt them, but about 20 people wouldn’t have been offered the jobs they now have, and we’d all have been hit up for higher taxes to cope with higher unemployment.
At FundingKnight, we approach things differently. Of course, we take care to check financial histories, and do our research, but the basis for deciding whether we will agree to put a loan to our lenders is very different – cashflow, governance, and a responsible attitude to risk – these are the things we want to talk to businesses about…
… not a missed credit card bill from one of the Directors almost a decade before.
[Photo Credit: Copyright Adam Tinworth – used under Creative Commons licence.]