Many businesses are already familiar with the process of applying for a term loan from a High Street bank. On the basis of ‘better the devil you know,’ it is therefore tempting to assume that the most straightforward route to agreeing a debt facility is to approach an incumbent bank or one of its major rivals, especially if you know how the system works.
But that is not necessarily the case. Even if a business has banked with a particular lender for many, many years, there can be no guarantee that a new application for a loan will ultimately result in a positive outcome. In fact, there are many reasons why an incumbent bank might say no to a request for additional funding – and the reasons that may have very little to do with the financial health or viability of the applicant.
For one thing, it’s still the case that banks are more cautious than they were prior to the financial crisis. Typically, there is less appetite to provide loans thought to involve an element of risk that sits outside the institution’s lending criteria. For instance., it can be difficult to obtain growth finance. Equally, the normally supportive High Street bank might be reluctant to support a business through a special situation, such as the loss of a major customer. Again, the element of risk involved may be deemed too high, in the first instance by the relationship team, or further down the line by the credit committee.
Looking at the Alternatives
Fortunately, there are alternatives, including The Route — Finance.
The Private Debt Platform operated by The Route focuses largely on Special Situations lending and, as such is has proved attractive to a broad range of viable businesses that might, nonetheless, struggle to secure additional debt funding from banks.
But as with all of the new lending platforms – including Peer2Peer – applying for funding may involve stepping outside of the traditional bank/client comfort zone. It is, therefore, hugely important to understand how the application process.
With that in mind, The Route has produced an infographic that explains how to apply for funding from The — Route’s Private Debt Platform.
The Initial Approach
The good news is that it is a transparent process that runs through a series of clearly defined steps.
Step one involves approaching The Route with a proposal outlining the sum required and the reasons why debt finance is necessary, along with some details about the business. This initial application allows The Route to determine whether the application falls within the investor mandate of the platform.
The questions The Route will ask at this stage include:
Are funds available on the platform to service the requested loan?
Can the business provide sufficient security?
Are the terms of loan within the criteria of the platform?
Is there a viable exit?
Is the applicant representing a corporate entity?
Taking these factors into account, The Route can make a decision within 48 hours.
If an offer is made – conditional on the successful completion of a due diligence process – both parties will agree the terms, including interest rates and the repayment period. During this part of the application, The Route will also provide details of the requirements for due diligence. Once all this has been agreed, an estimated drawdown date will be confirmed. The borrower then pays a booking fee and signs off on the terms.
From that point all that remains is due diligence. This is a comprehensive process but the business is provided with a full list of the documentation that is required. The aim is to provide assurance to The Route and its community of investors that the business is a position to make good on the repayments, that its assumptions about revenues and profits are in line with market conditions and that security can be offered.
With due diligence completed the money is transferred.
Not So Different
In other words, the processes undertaken by The Route are not so different from those that a customer might expect from a High Street bank. However, The Route can usually progress towards completion much more quickly and throughout the process, prospective borrowers are kept fully informed.
In fact, it is wrong suggest that applying for Alternative Finance involves stepping outside a comfort zone. Many the processes will be familiar and there is a real commitment throughout the industry to transparency and quality service.
To find out more about The Route-Finance call: 020 3141 9040