How do you get a small business loan?
The successful securing of small business loans, or more generally business finance, is often essential to the prospects of a start-up or fledgling SME aiming to establish, grow or move on to a new phase of development. The market for business finance has changed dramatically in recent years as banks, which once dominated the arena almost entirely, have given up market share or have chosen to vacate areas of the market. This has left opportunities for alternative funding options to emerge into the vacuum left to meet the demands and needs of small and medium sized businesses.
But how do you go about securing small business loans?
Here are some tips on how businesses can prepare themselves when navigating, what has now become highly competitive and somewhat confusing, business loans market:
1. Consider all the options
Contemporary businesses looking for loans should not only be looking in the direction of the bank that manages their current account, which historically would have been their only possible route to business finance. It is now crucial for small business operators to have an open mind and to consider the full range of funding options and loan facilities that are now available, whether that is competitor banks or other sources of funding.
While the retreat of mainstream banks from the realms of SME lending has made life rather more difficult for smaller businesses, in general terms, the good news is that emerging alternative lenders often offer more specialist services. We have seen the emergence of crowd funding which is the practice of funding a project or venture by raising many small amounts of money from a large number of people, or emergency loan companies like Cashsolv which provide funding for businesses, typically within 24 hours, to help them with a hole in their cash flow.
2. Look beyond the headline figures
The reality of the business loans market at present is that lenders know there is strong demand for any credit facilities that they are in a position to offer. That is not to say that there are no options available to businesses looking for suitable terms, but only to warn against expecting too much in terms of borrowing money at low interest rates.
Headline interest rate figures on business loans are designed to stand out as eye-catching offers but they don’t necessarily tell the whole of the story. It could be that what seems to be a great deal does not stack up or suit your company’s needs. So it’s important not to be lured into agreeing a funding arrangement purely on the strength of a fetching headline figure.
3. Can you leverage your existing assets?
Without taking any undue risks, it can be worthwhile and ultimately very beneficial for a company to leverage certain existing assets in order to free up funds for future investment.
This can include refinancing equipment or vehicles that are wholly owned by the company or getting paid in advance of your invoice credit terms by entering into a sales invoice factoring or invoice discounting agreement with a funder. Invoice factoring and discounting are both growing in prevalence and they provide small companies with important routes to finance when cash flow problems are in danger of becoming critical concerns.
4. Be prepared
Any funder will want to see recent management accounts and details of your future projections and so make sure your accounts are up to date and available and that you management accounts are current. Also prepare a realistic profit and cash flow forecast which should be able to show that the business can repay the finance that you seek and when you propose to repay it.
Be prepared to offer assets as security for lending and so evidence of ownership and values of assets can also be very useful and speed up the lending process.
5. Be honest with lenders
There is little to be gained from hiding the truth about the financial history of your organisation as you approach the process of applying for a business loan of any kind. Credit reports and search facilities are readily available to seek out historic data about your company; for example your last filed balance sheet, whether you have any county court judgments still unsatisfied, charges registered against the company or simply who owns the company. So lying about or covering any issues should not be considered as an option as you will soon be found out. It is far better to be upfront and honest with potential lenders and to figure out what options are available to your company as it stands, not as you would prefer it to be.
6. Get the right advice
There are times when a company and its leaders need to rely on their own ingenuity and management skills using their industry knowledge and wiles, but the process of applying for a business loan is probably not one of them. It is not something that most businessmen or women do that often and it can make a big difference to your chances of getting the kind of loan deal you want if you are able to access advice from relevant specialists at the right moments.
The ever-changing nature of the business loans market at present makes it perhaps more important than ever for companies to bring in third-party experts to understand your needs and to provide advice as to what options there are available.
Your own accountant or bookkeeper is often the best place to start to seek this advice as they will be carrying out a similar role for many of their clients but do feel free to contact us at Cashsolv. We are happy to provide advice to help business owners through the funding jungle.
For further information Download our Guidance Paper on 'How short term business loans can help your business finance problems', or view the following relevant pages:
- Business loans
- A guide to Short term business loans
- Emergency business loans
- Emergency business loan - why not use a bank
- A guide to Small Business Loans
- How quick business loans can encourage business turnaround
- How to get a quick business loan
- The pros and cons of secured business loans
- How to make business finance work for you
- A case study: How we helped a recruitment firm invest for growth
- A case study: Quick business loans could be the answer
- Business loan calculator
- Construction Finance