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Unlock a wealth of opportunity

Those who put together a strong business plan can still secure funding, say the banks. And there are other cash-generating options to explore too.

In last month’s budget, Chancellor George Osborne confirmed the introduction of a “credit easing” National Loan Guarantee Scheme (NLGS) to help boost lending to small and medium-sized enterprises (SMEs).

Under the scheme, the Government will guarantee £20bn of banks’ own borrowing and the move will, in many cases, lead to a 1% reduction in the cost of business loans. The reaction to the scheme has been mixed, with some saying 1% is too small a figure and that the scheme will serve those looking to expand their businesses or launch new initiatives, rather than boost cash flow.

The ability to meet banks’ strict lending criteria is the major problem facing smaller independents, with many struggling to cope by using their personal overdraft and credit card facilities, or finding themselves having to borrow from friends or family.

Dan Coen, business development director at corporate advisory firm Zolfo Cooper, agrees the market for gaining credit is tough: “There is a huge reluctance to lend to the retail sector, simply because it’s never out of the headlines at the moment with the number of businesses failing and is seen as high risk.”

The problem for fashion retailers is that a lot of their money is often tied up in stock, and it’s this sort of working capital that banks are reluctant to fund. “There are two things going on at the moment. The bank doesn’t like the idea of funding stock, which can be difficult to value, and at the same time there is less demand for loans from start-ups or development capital for smaller retailers,” says Patrick Woodall, chief executive of retail consultancy Pragma Consulting.

Despite these challenges, figures from research firm Local Data Company show that 15,000 independents opened last year, outstripping closures by 2,500, while 2011 saw a raft of fashion retailers grow their businesses, proving that by putting the right measures in place there are routes to obtaining finance.

Among these was menswear indie Kiosk 78, which relocated its main Leeds store to the town’s historic Corn Exchange in 2011, and opened a second store in Wetherby – a self-financed investment worth tens of thousands of pounds. Co-owner Damon Bryan says gaining funding from the bank this time around was an uphill struggle: “I did go to the bank to see if we could gain some flexibility ahead of our expansion, but even though we presented them with a good business plan and had a good credit history, we found them very reluctant to help.”

But Rebecca McNeil, head of credit risk at Barclays, says businesses are reluctant to apply for credit due to the uncertain economic outlook, while many are simply afraid of being rejected. “The reverse is true; most people that apply are accepted,” she says. “The chances are that as long as you have a viable business and a strong business plan, you will be successful in gaining finance.”

Putting together a coherent business plan is the essential first step to gaining finance, but can often seem a daunting process to retailers. “People think they need to come to the bank with a fully fledged business plan, but they don’t. Retailers should engage early, and start having a conversation with a Barclays business manager,” says McNeil. “Then when they get to the stage of applying they are more likely to have gone through the various stages and have the business plan finely honed in order to be successful.”

Richard Bearman, senior area commercial director at HSBC’s West End commercial office, advises segmenting business plans between the non-financial creative vision, or mission statement, and then backing it up with a historical account of the business’s finances and forecasts for growth. The critical element is the cash flow forecast, because this demonstrates a business’s ability to meet repayments, he says.

“Fashion retailers are going to have their cash tied up in their stock and often their trading cycles are quite long, but we understand that. However, it’s still important to see where the cash is going to be generated from, at what level, and over what timescale,” says Bearman.



Businesses struggling to gain finance via high street lenders do have other options. The Business Link website ( enables firms to use a filter tool to search for relevant sources of finance, including initiatives such as the Enterprise Finance Guarantee Scheme (EFGS). The EFGS is designed for businesses that lack the required security in terms of assets to secure a traditional commercial loan. Providing the applicant has a viable business model, the Government will guarantee up to 75% of the lending and help facilitate the loan with one of the high street banks, charging a premium of 1% to 2% over the normal interest rate.

The EFGS provided a lifeline for John Reid when he and his partner set about opening premium Bristol indie GarmentQuarter in 2010, but found themselves lacking the necessary security to get a loan. Utilising the scheme meant Reid was able to press ahead with the £200,000 investment in opening the store, which was 70% self-funded, and 30% funded by the bank.

“We made sure our business plan explained what we wanted to do, who we were, what our background and skills were, included detailed insight into the local market and location, and provided financial forecasts, incorporating a best and worst case scenario,” he says.

Other options open to businesses via the high street banks include invoice discounting, where the bank releases money from an invoice owed to a business by a customer, providing much-needed working capital.  

Retailers can also seek to attract investment from ‘business angels’, who are normally ex-entrepreneurs and often experienced in the industry, who have made their money and are willing to invest.

Last year, womenswear indie Black White Denim in Wilmslow, Cheshire, launched a transactional website and invested £10,000 in a pop-up store. So far, the business has been entirely self-funded, but owner Jo Davies concedes that further expansion will require outside investment. “You get to the point where you don’t have any more to put in. My view at the moment is that we would look for an investor who could bring their own experience into the business and add value that way,” she says.

Fashion retailers can also approach alternative lenders to aide expansion, such as Merchant Cash Express. The firm doesn’t require a business plan and instead looks over a business’s average takings across a 12-month period and provides indies with fixed-fee, 0% interest loans from £100,000 to £150,000 per site. Businesses then only have to pay back the money via a percentage of their debit and credit card transactions, which would have been previously agreed with the lender.

There’s no doubt that the market for credit is, and will remain, tough. However, creating a strong business plan which marries vision with commercial viability will leave retailers in the strongest possible position to secure funding.

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