Despite the economic recovery, many SMEs still struggle to secure funding from the traditional providers. If you’re just starting out, investing in your company is a risky enterprise from the banks’ perspective. However, there are things you can do to give yourself a better chance of getting your loan application approved.
Make a strong business plan
Your lender is most concerned with three things: how much you want to borrow, how you plan to use the money, and, most importantly, how you’ll pay it back.
Your business plan should demonstrate how you expect to pay back your loan by covering your objectives, strategies, and financial forecasts. It should describe what your business does, the state of the market you’re entering, and who your competitors are, in clear and impartial language. Present it in an organised way, so that your banker can easily find sections to reread.
Know your outgoings and incomings to the penny
Both banks and alternative lenders will want to see how your business is performing before they decide to finance you. Before you fill in that loan application, bring together all of your company’s financial records, including cash flow, balance sheets, profit and loss projections, recent tax returns and any collateral you may have. Projections must be achievable, or even better, backed by confirmed orders.
It’s a big task, so consider investing in an accountant to crunch the numbers. It could be an invaluable investment in the long run.
Understand exactly what you’ll need the loan for
…and will it make you more profitable? If not, you should reconsider applying for a loan.
However, if you’re confident a cash injection is going to boost your revenues, go for it. Draw up a budget so all parties are clear on how the money will be allocated, and figure out how much the loan will cost to pay back, taking interest rates and fees into account. Even if you think you’ll be able to pay off your loan with no problems, it’s a good idea to have a contingency plan in place for your own peace of mind.
Do your research
Are you sure the loan you plan to apply for is the right method of funding for you? The number of available loan options can be dizzying, but if you put some groundwork into finding out the best solution for you, you can ultimately save a lot of money.
New companies may find more success with a peer-to-peer business loan, which tend to offer lower rates, or if your business is already taking money, a revenue advance, where you pay back the loan with a percentage of your takings, might be right for you. These types of funding are also useful for their transparency – you know exactly how much is going to be due each month. Furthermore, if you’re struggling to repay one month, your lender will be more willing to work with find a solution.