BBC’s Dragons’ Den has a lot to answer for. Comedy actor Ricky Gervais summed up the irritating trend when he entered the ‘den’ for a BBC promo trailer to promote his Christmas special. ‘I need a million pounds because we do tend to run over on the catering’ was his strongest pitch.

At some stage in the conversation every business person and entrepreneur I meet now speaks this pseudo financier language of asking for so much money in return for a certain percentage of the business.

A micro-manufacturing business I have just started advising has a product and a customer list to die for. But its investment in premises and equipment has left it with a looming financial blackhole. Before going to the bank, the owner told me he thought the company needed a loan equivalent to two-thirds of the turnover ‘to pay off existing creditors and drive the business forward’. I suggested he shouldn’t bother to sit down at the bank because the meeting wouldn’t last that long.

Pre-credit crunch maybe people could have accessed financing on the back of such flimsy and casual approaches. But not any more: money is in short supply and the banks need good reasons to lend. And from my micro-manufacturer that reason sounded like passing a working capital deficit from one sucker to another.

Same old story

What lenders are looking for in the first instance are not numbers but narrative. What bankers want to hear is how the money is going to be repaid with interest. The entrepreneur has to tell the story of how the business is going to benefit from the injection of funds.

If you need equipment to make a new product that you are pretty certain will sell, say so. If your staff need training to be more productive, then explain why you think the learning and development will benefit the bottom line. The telling of this story is crucial and the numbers must match.

Entrepreneurs are optimists, but these days they can expect their enthusiasm to be severely discounted. If you think you will sell 100, lenders will be less sure and will finance on that basis. Lenders want the boss of the growing business to know about their business, not talk in vague terms about finance. That’s why I will refuse to introduce some business people to would-be investors. I’d be embarrassed about their inability to coherently explain what they want the finance for.

All in the detail

Once the entrepreneur has explained how the business will grow if the financial resources are available then the accountants and financiers can put in the details such as how much is needed over how long and how the resulting cashflows will ensure a successful payback.

Once the finance is in place, it remains important to be attentive to the bank. I’m shocked by how many companies are too casual in the way they provide regular financial information. Banks are now more likely to pull credit facilities on the grounds of a lack of information. And with the credit crunch and economic slowdown biting hard, they stand more chance of being showered with money by the BBC’s dragons.

Banking on good relations

Banks have complained for years about the paucity of management information provided by their customers, particularly in the small corporate market. The reason they have allowed the situation to persist probably says something about the previously competitive state of the bank lending market.

But the fight to lend has disappeared. This means businesses that rely on some form of lending from the banks need to up their game. Any business that wants to maintain its credit lines should provide their bank with monthly profits and loss account, cash flow forecast, balance sheet and comparisons to budgets.

This is standard practice for management accounts, but bank managers often say that either the information doesn’t exist or their clients don’t pass it on.

What passes for management information sent to banks is often nothing more than a few figures on one A4 sheet. If there are no explanatory notes and the figures are two or three months out of date it is no wonder credit committees are coming down hard on relationship managers asking them to extract more from those to whom they are lending their most precious resource, credit.

Peter Charles runs consultancy firm PCL