Business loans can be used to finance pretty much any business need or objective. Taking on a business loan means your business will borrow money from the bank (or another lender) and agree to pay it back at regular intervals over a set period (with interest). Business loans are usually issued over the medium to long-term (3 – 15 years). In the past to be eligible for a business loan you’d typically need to prove your business had assets of commensurate value to the loan.
This is still somewhat the case depending on the business loan provider, but for SME’s loans, below £25,000 have started becoming more accessible, requiring little or no collateral, but instead being assessed based on the trading history. If you’re business is brand new there’s also the possibility of accessing debt funding via the start up loans scheme.
Business loans remain a popular choice for businesses seeking finance as they offer a relatively inexpensive and quick way to access capital depending on the terms agreed / finance sought. It is no secret that the lending landscape for small and startup businesses is tough and applying for business loans can very easily become a demoralising tale of deflection and rejection.
Before you start calling in too many favours for funding, take a look at these tips and action points on how to prepare for and optimise your chances of getting a lender to give you a business Loan.
Be Honest and Clear
It is easy to think that lenders will want to hear all kinds of amazing things about your business and its money-making potential but what they really want is the truth. It can be tempting to sugar-coat or overstate the details of your business and exaggerate its earning potential, but this is very often counter-productive when it comes to making loan applications.
However, much potential you feel that your business might have in the future, it is important in the early stages to be realistic in the goals that you set, certainly when it comes to applying for business loans. Small businesses often let ambition get the better of them and aim to borrow relatively very large sums of money even where this isn’t necessary.
Clearly, every circumstance is different, but a healthy sense of realism and a relatively modest loan application can often improve the prospects of small companies when it comes to managing finances and overall expectations.
Present a Properly Presented Cashflow
We’d always suggest making sure that you have engaged an accountant to produce a profit and loss and cash flow analysis showing the case both with and without financing. This will give the potential lender some comfort that the cash will be available to make payments when they are due.
Consider Leveraging Security (Inc. EFG)
For secured loans banks will accept assets in guarantee owned by the business or in the form of personal guarantee from the directors – it’s worth considering the risk and whether your will to provide this security upfront, it makes the lending process generally quite straight forward.
In essence providing security means that if you find yourself unable to make the monthly loan repayments, you risk losing the asset. The bank has the power to terminate or “call in” a loan if it feels that the borrower is at risk of defaulting on it. This could also send your business under.
For those with insufficient security of their own British high-street banks can also offer an Enterprise Finance Guarantee scheme – replacing the old Small Business Loans Guarantee Scheme-. Under this scheme, the government guarantees a percentage of the loan, which can be for loans between a lower and upper threshold.
Seek Advice and Explore Other Options
Getting clear guidance and advice on your loan applications from experienced experts in the field can make a real difference to your chances of successfully securing the financing you’re after. Remember, informationally as well make sure you are aware of all the fees and charges that will be levied on a loan or overdraft in addition to the interest charge. These charges can sometimes be very substantial – they might include an arrangement fee, transaction fee, renewal fee, management fee, etc.
The ways in which small and startup companies are funded has changed dramatically over the course of the past five years or so. The relative reluctance among mainstream lenders to offer loan deals even to fast-growing businesses, along with technological advances and innovations, has led to the rise of alternative sources of funding becoming much more prevalent and increasingly popular. So much so in fact that there are now many more ways to access finance than many entrepreneurs and small business bosses actually realise.
The route to finding the finance you need as a startup company might not always be straightforward but with the right approach and the requisite persistence, there is no reason to believe that appropriate funding options aren’t out there and accessible whatever your circumstances.
It is an often quoted statistic that only 1 in 5 of start-ups make it to the 5-year point, and it is understandable that experienced business people end up looking to raise money with a poor credit history. So the question becomes, how then can a business go about getting a loan if they are faced with this situation? It is important to remember that even if you have been turned down for finance by your high street bank that there are other options available and there is no need to give up.Firstly you should explore the startup loans scheme from the government if relevant for your stage of business.
It’s worth also exploring a specialist lender, that depending on the circumstance they are more likely to be able to produce a product that will suit your circumstances and at the same time will consider all aspects of the opportunity – rather than just the dreaded credit score, if this is an issue. Having a bad credit score does not mean that business lending is a closed book and doing a bit of research will likely turn out to be time well spent as you will find that specialist business lenders are always out there.
