Top Tips for Applying for a Business Loan

Tip 1: Know your business inside out

From a lender’s point of view, it’s a massive alarm bell when a business owner or manager stumbles on straightforward questions about their business. It’s like trying to sell someone a holiday without telling them which hotel (or even country) they would be going to and how they are getting there. Your chances to close a successful sale would be quite slim.

Convincing someone to invest in your business for a period of time is even a harder task than selling something they could use immediately. You should feel comfortable talking about all aspects of your business, including its past performance, present challenges, and plans for the future, ideally in an engaging manner. Please come prepared!

Tip 2: Keep your records up to date

We know there’s never enough hours in the day for small business owners to complete their 101 tasks, but when a lender is assessing your business they will expect to receive your latest records, like bank statements, statutory and management accounts, proof of revenues, contracts, etc. Therefore it’s essential that the latest copies of these can be provided quickly and in a decipherable format.

The best advice is to keep all your records current and readily available. That way you don't have to scramble to compile everything at the last moment. Set yourself strict deadlines on reporting, either weekly or monthly and stick to them – there’s nothing worse than trying to consolidate figures that aren't fresh in your mind. If this sounds like hard work, hire a professional accountant. They tend to pay their cost many times over, particularly when you're looking to raise cash.

Tip 3: Have a plan and know the purpose

One of the most common purposes we hear for a business loan is to support ‘cash flow’. Well, this sounds reasonable, as long as you know why your current cash flow is short and cannot support your business. Is this because you’ve had to pay out for some extra stock to get you through an increased sales period, or to pay overheads while you wait for a third party to settle a balance?

Knowing and being able to present the detail behind the purpose of the loan is important to any lender, as it would be to anyone parting with their cash. We recommend that you have a clear plan of how the money will be spent, and how this will support your growth plans.

Tip 4: Communicate honestly and openly

This is as important as ensuring all records are in order and up to date, as well as knowing the amount and purpose of the financing you're seeking. Once you've selected your lender and submitted your application, treat ongoing communication with them as top priority. Be honest. Always assume the person on the other end is trained to look for any inconsistencies in your stories and numbers, because this is true. Respond in a timely manner and manage expectations of any materials you're preparing. The discipline with which you handle your application process is often indicative of your repayment discipline, so make a good impression. Remember, no lender is likely to lend to a business where there are still question marks floating around.

Tip 5: Don’t over-commit yourself

We find that many businesses tend to over commit themselves financially very early on. This may cause problems later down the line when trying to obtain further credit. Your chances of raising money isn't great when you’ve over-borrowed early on, and can't keep up with the payments, or if you've given away all the security in your business. Our advice is to pace yourself and align your credit commitments with the long-term goals of your business. Every time you take out finance, think about the long-term impact of the terms you're agreeing to on your company and its assets, and ensure it works with the future plans you have for developing and growing your business.