For many business owners, a Business Loan could be a vital way to finance a new start business or to develop and grow an existing one. Obtaining funding for your business may not be entirely straightforward however. Here are six reasons that could help you obtain the business loan you need and avoid being turned away.
It is not unusual for small businesses to have no formal business plan. Whilst it may seem daunting, pulling together a business plan can be very useful and there is help available. Any lender will, as a minimum, want to know what activity your business is engaged in, where you are based, who are the main people involved, and what use the loan being applied for will be put to. Explaining these points, along with how the loan will be repaid and the impact it will have on your business will be a strong start to any loan application.
Remember, lenders are not necessarily looking for clever graphics, what they do want are key facts, straightforward explanations and an understanding of where the business is now and where you want to take it. Combining a business plan with cash flow forecasts as explained below should greatly improve your chances of success in obtaining finance for your business.
Demonstrate Affordability
Being able to demonstrate that your business can generate sufficient cash flow to pay back a loan is one of the first things a lender will look at when gauging whether to approve a loan application. Given the importance, it should also be one of the first things you consider when making a loan application and being comfortable yourself that the business can afford the loan.
Having a cash flow forecast can demonstrate that you have considered where your income will be generated and the costs of running your business. In addition, such a forecast will show affordability, or otherwise, of the loan repayments, and also where times of tight cash flow occur, for example over Christmas and New Year.
Consider working with a business advisor or an accountant to compile your forecasts and ensure figures and assumptions are accurate.
Be Transparent
Lenders will often use credit reports to check on an applicant’s credit history as part of their underwriting process. If your credit report shows past problems in repaying borrowings, you might find a new loan request being declined.
This should not be a deterrent to pursuing your goals. Poor personal credit ratings can result from a variety of reasons such as redundancy, illness, divorce, bereavement or other unfortunate circumstances. Be honest with the lender and make them aware of any past issues rather than letting them find out for themselves. Explain the circumstances, consider alternative finance options and take advice.
Be organised
Prior to approaching potential lenders, be prepared and have suitable documentation to hand. It is common to be asked for proof of identity, a list of your personal assets and liabilities, bank statements, and if already trading, accounts showing your performance to date.
There are plenty of resources that business owners can refer to when putting together a loan application. There are numerous sources on the internet, whilst a detailed loan application checklist can be obtained by emailing us via this link: Tatton Commercial Finance – Checklist. These resources can decrease your likelihood of looking disorganised or unprepared.
Seek expert advice
Lenders are likely to take a more favourable view if you have sought assistance from knowledgeable advisors. Accountants and business advisors can be important sources of advice for new start and small business owners. In addition, there are national mentoring services such as the Business Growth Hubs.
Specific business finance advice from an independent advisor is also recommended, given the variety of alternative and mainstream funders, providing guidance on the types of funding available and assisting with the preparation of a solid application.
Show passion for your business
In simple terms, demonstrate why you and your business are good candidates for a business loan.
Be passionate about your idea/business, what your plans are and the benefit you will get from the funding you are applying for. If you are not seen to be excited about your business, why would a lender?
If you are looking to obtain a business loan, but aren’t sure where to start, that’s where we come in. Give us a call on 01565 631 506 and we would be delighted to support you on your journey of growth.
