What is a Viable Business?
The main business lending banks are well placed to support viable businesses – providing funding for start-ups or expanding businesses and ensuring cash flow for day-to-day operations. All businesses seeking credit are strongly encouraged to develop a robust business and financial plan and to submit this as part of a formal application to their bank.
A viable business is a business that is currently in operation and has a realistic expectation to continue trading for the foreseeable future. Each lender makes its own assessment of business viability but key characteristics of viable businesses include:
- Trading history – A history of successful trading and profit and/or cash generation – typically demonstrated by financial accounts of the business.
- Future cash and profits – Realistic cash flow projections and business plans based on realistic assumptions for the business and the sector in which it operates, that demonstrate the potential for continued trading and cash/profit generation for the foreseeable future, and demonstrate the business is expected to generate enough cash to make repayments as they fall due. This is particularly important for start-ups, which do not have trading histories. Short-term cash flow projections (i.e. 6-12 months) are of particular importance in the current environment.
- Business model – A management team that has adjusted its business model and cost structure to the prevailing business climate. For start-ups, the business plan should reflect current trading conditions and show how the business will cope with and trade through them.
- Credit history – A borrower should ideally have a good credit history over the previous three to five years and making payments to creditors and the Revenue Commissioners as required. For start-ups, this may relate to the promoter’s personal credit/financial history or any previous business ventures in which they have been involved.
- Solvency – An ability to show that the business is capable of maintaining or returning to solvency within a reasonable timeframe.