The Scottish Government

A chip shop, established for 40 years in an urban location, with 6 staff, seeking to expand their current premises and purchase additional equipment in order to increase output to meet a growing market demand.

The business had banked with their current bank for 10 years and had no outstanding debts, other than a standard small overdraft facility which had been managed conservatively, without problems. The bank was approached for a loan of £70,000 and requested a full financial review of the business which cost £2,000 in accountant's fees. Initially, there was a strong indication from the bank that they would provide a sufficient loan facility, but eventually, after requiring security based upon the business premises valued at over £200,000, the bank refused the loan.

"Our hopes were raised and we had to spend a considerable amount of money on accountants fees to meet the bank's demands, but eventually the bank just wasted our time and money and said that we had insufficient security …. this was odd, because our accountant thought it was fine!"

Finally, the owner/manager took out a loan with a telephone bank, at very high interest, but it was the only way to move forward, given the amount of time wasted by their existing business bank. After a delay of almost two years, the business has recently opened its expanded premises and is already increasing sales and profitability.

Glasgow based heating engineering firm, trading for 22 years, with 14 staff, seeking to grow and develop market opportunities by opening a second office in Edinburgh. The business had an overdraft facility of £10,000 to assist with cash-flow issues and was trading in profit at the time of the bank application.

The overall cost of the office purchase project was £110,000. An application was made to the firm's business bank for a loan of £50,000. The firm had also successfully obtained £30,000 from the West of Scotland Loan Fund, with assistance from Business Gateway/Scottish Enterprise. The owner/manager felt that the business proposal was strong and that his presentation to the bank went well. They had undertaken a considerable amount of market research through trade shows and trade journal research to demonstrate market feasibility for the project. However, the bank delayed giving a response to the loan application and "…did not provide an adequate explanation for the delays. The bank kept making little objections and niggling requirements, which took time to address….they were slow to respond and it became a marathon … I eventually wore them down!" The delays may have been due in part to the relatively short two year period that the firm had been with the bank and their "…uneven trading record."

After more than five months of negotiating with the bank the £50,000 loan was approved and the project went ahead in its entirety. With the opening of the new office, the business is experiencing more than the 10% increase in sales and profitability that they had forecast, with forecast sales for 2007 expected at £3.1m, compared with £2.5m in 2006. The delay in accessing the bank finance set the business back by several months, potentially costing the business £50,000 per month in lost trade.

A joinery business, established for 15 years, with 3 employees. The business has a regular annual sales turnover in excess of £250,000 and has successfully managed an overdraft facility of £15,000 for several years in order to overcome cash-flow issues relating to the 60 day creditor payment regime in the construction industry and the need to purchase materials, equipment and pay staff wages. Around 40 per cent of current sales turnover is generated through subcontracting work for one established large construction firm client.

Additional working capital was required in order to keep the business running during a period of almost year, after the owner/manager had suffered a broken wrist which took a long time to heal fully. The business continued to operate, in order to meet a heavy workload of existing orders, but required additional staffing during the times that the owner was unable to work. Unfortunately, the business did not have any key worker insurance cover and therefore alternative sources of funding were required.

The business's bank, which it had banked with for 12 years, was approached for a loan of £30,000. The bank refused to provide any additional funds to the business, over and above the existing overdraft facility, did not offer to meet the owner/manager and did not offer any financial advice.

The owner/manager did not seek alternative high street bank finance and instead, without consulting external advice, sought to use personal finance solutions. This resulted in "…spiralling credit card debt and the use of alternative loan shark finance. It was only after a visit to the citizens advice people, that I realised that the only option was to consolidate my debts through remortgaging …. by this stage I needed £50,000."

The owner/manager is now fully recovered and the business is operating at increased levels of sales turnover and profitability.

A precision engineering business, established 25 years, with 49 staff operating profitably with an annual sales turnover of £4 million, seeking to realign its marketing strategy in order to move from an existing highly competitive international trading market to a global niche market.

Considerable trade research, including attending global trade shows and exhibitions led this firm to develop a new product with new global market applications for the commercial logistics industry, notably with regard to transporting LPG.

Despite already having a considerable overdraft, the firm applied to their bank for up to £500,000 in order to facilitate product and market development. Scottish Enterprise was also approached with a view to securing venture capital finance. The business was unable to secure any external finance, despite producing a detailed business proposition and full financial details (including full profit and loss and cash-flow forecasts), due to lack of collateral.

"We were informed that there is an equity investment gap affecting businesses seeking up to £1 million and we received no interest from venture capitalists and business angels …. The bank was risk averse and wasn't interested, so we are faced with exploring options to raise the finance internally, perhaps by selling off part of our existing business."

Thus far the project has not taken place and, 18 months on from their initial approach to their bank, the business is still looking for external funding opportunities. If successfully adopted, the proposed new product and market development would "… represent a step change for the business, raising sales and profits considerably."

A conservation studio, specialising in conserving and restoring museum artefacts - formerly operating for 20 years as a public sector organisation, with four staff. The business had an existing client base of Scottish museums and art galleries, with a full order book of work for the next 12 months.

Three partners, who were made redundant from the original business, paid £12,000 of their redundancy payments to buy-out the existing conservation business, but required a further £8,000 in order to purchase new equipment and to secure cash-flow during the early stages of running the business. A £5,000 grant was secured from Historic Scotland, which assisted with 50% of the cost of new equipment purchases, but the business's existing bank delayed for several months to offer a £3,000 overdraft facility. Eventually, when funding was made available, "…it was at a ridiculous cost … they did not provide a reasonable explanation for the delay, or for ignoring our repeated requests for overdraft assistance. I believe that they saw us as a new business - having come from a public sector background - and they didn't understand our sector. This probably contributed to the delays and the unreasonably high interest charged on the overdraft. It was too expensive for us and we decided to use our own money instead."

The business has subsequently changed banks and has been established for a couple of years. After a slow start, the business was profitable and generated £120,000 in sales turnover in the last financial year and is on course to increase sales by 50% this year.

A café and mobile food service business, selling hot and cold snacks, employing seven staff. The owner and his wife had been working abroad for several years prior to starting the business and were not considered by the bank as resident, for commercial lending purposes. Business Gateway was approached for help, but other than providing grant assistance to employ staff (who had been long-term unemployed), there was no financial assistance available to them.

The business was initially funded using £40,000 of the owner/managers' savings. A commercial business account was opened, but no overdraft facility was provided and the business suffered considerably from cash-flow problems. Funding was also required to enable the purchase of three vans for the mobile catering business and, after the bank refused to offer a loan, the vehicles were secured through leasing arrangements.

"The banks regarded us as too risky … we had been out of the country for a while and the business is cash based, with a lot of the money not passing through the bank at all! They wanted to go through our accounts in detail, but this wasn't practical. We managed to open up a commercial account with our personal bank, but they would not offer us an overdraft and, despite being mainly cash based, it was difficult to control cash-flow when some invoices were taking more than 60 days to clear …. We rejected factoring as this was too expensive."

The business is now three years old and generating sales turnover of £250,000 per annum. Whilst the business has only managed to breakeven thus far, the respondent owner/manager believed that they would make a profit in the next financial year.

Two recent graduates, each aged 23, had the opportunity to buy an existing bar and restaurant busines in Edinburgh as the existing owners were planning to emigrate. The young entrepreneurs sought a £100,000 bank loan to purchase the business which they regarded as a very good opportunity having decided that they wanted to run this type of venture. They had a plan for taking over an existing well run business and building on its existing customer base. Their focus was on its timing, with the smoking ban and the ability to make use of the outdoor space that this business had. The entrepreneurs received help from their parents, who had business experience, in putting together a business plan and preparing cash-flow projections.

Several banks were approached but although they were initially encouraging, they all turned the application down for similar reasons. Whilst the business plan was accepted, the owners were seen as lacking previous management experience and lacked a business banking track record. They also did not have any collateral and were only able to put £10,000 into the business themselves. In the words of one of the founders "the banks promised a lot but in the end delivered nothing". Eventually the money to purchase the business was raised by means of their parents re-mortgaging their houses.

A manufacturing firm specialising in making windows for commercial vehicles ( e.g. buses and trains), established for 10 years, with a workforce of 80 staff based on three sites. The firm has been experiencing increasing foreign competition in its main markets and has been seeking an opportunity to diversify into the more lucrative, higher value added, and less competitive commercial vehicle door manufacturing market.

An opportunity arose to acquire a UK based commercial door manufacturing firm, which had gone into receivership. Full due diligence was undertaken by a specialist consultancy firm, at considerable expense and the firm approached their bank with a detailed set of financials (including 3 year projections, full accounts and a detailed business plan), with a view to raising £1 million in bank and equity finance out of a total project cost of £2.2 million. "Initially, at the local branch, our bank was interested in lending us the full £1 million and venture capital options were not followed up. However, our loan request was referred centrally to Edinburgh and then delays started to take place. Eventually, the bank refused our loan application with two days remaining before the deal had to take place - effectively leaving us with no options but to withdraw." The only reason provided for refusing the loan was that the business was reliant upon three main clients "…but they were aware of this from the start."

Subsequently, the business has changed banks. One of the directors, an ex-banker, was "… disgusted with the actions of the bank … and embarrassed to have once worked for them." Using internal business funding, they have started up their own commercial door manufacturing division and, although on a small scale, after only a year it is contributing one tenth of the annual £4 million sales turnover with the division's sales forecast to rise four-fold during the next two years.