Hi there,
I'm informed that if I register a Limited Company and obtain a bank account for said company, that the company will not be entitled to any credit from banks for at least 6 months, is this true?
Thanks, KS
Not my experience - who informed you? If your lawyer or accountant then fire them. If a friend then I will leave it up to you.
No, not true. The company is NEVER entitled to any credit from banks. That is, it is clearly up to the individual bank and the individual company, and indeed the directors and shareholders of the company.
And IME is quite difficult to get.
For any kind of "Facility" they will want to see a cash flow forecast, (best done by a seasoned accountant) and they'll want security.
If it's an overdraft facility you want, to pay your own wages and bills in the early months of trading they might take a sideways look at you providing the security by way of a simple guarantee!
They may want to take a second mortgage on your house if you have enough equity in it. They had my house valued by their own professional valuer (I got the bill for that) and then promptly halved his valuation. Naturally the valuation fees and accountants fees actually worsen your cash flow position. :((
There is a tendency for banks when dealing with small companies to regard the initial grant of a facility as the "be-all and end-all" and to decline to extend that facility as inflation bites into it. We are still stuck with the £40k facility we got in 1989 secured against a house worth £280k (£105k in 1989) + a debenture.
You might find that a "Business Development Loan" is available when an (increased) overdraft is not. Our bank keeps on writing to us to offer a BDL (when we don't need it) but won't increase our facility either when we do or when we don't !
Oh, and BTW, if anything else crops up in the course of business such as a supplier requests an "irrevocanble confirmed letter of credit" you can't just get one, even if you got money in the account to cover it, It is an "Additional Facility".
Da Capo... (Back to the top) DG
An overdraft, letter of credit and loan are all different lending products Derek, designed to cover different liabilities -
An overdraft is not there to be index or inflation linked - but to cover your debtor book and/or facilitate support of a business' cash cycle. Unless your debtor book has increased, why would the bank increase the limit? That said, if you run your accounts well - ie always swing back into credit and use the O/D only on a short term basis, I don't see why they would not - after all it is a lucrative means to earn fees!
Did the Bank decline you a letter of credit acceptance IN EXCESS of your agreed borrowing, or within your facility? Ie if you have a 40K facility and require a £20K loc - it would be quite normal to (given the assumed director's gtee, floating debenture @ 2nd charge) to reduce O/D to £20K and issue loc until loc satisfied from supplier and then reinstate £40K facility. It all depends on whether you are prepared to pay for the Loc acceptance - which is pricey!!
And centralised lending offers are generally meaningless!
Hope this helps
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