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7 ways to Improve Your Chances of Securing a Business Loan |
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Written by David Willetts
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Discover 7 ways of improving your chances of securing a business loan.
Many business owners will require funding for their business. Short term operational funding, such as a bank overdraft may be straightforward to secure, however, larger fixed term funds such as bank loans may need more work to arrange.
How do owners, particularly of small medium sized businesses, improve their chances of securing the desired funding?
There are no hard and fast rules. Success will ultimately not only depend upon how good the business case is presented, but also on establishing immediately a relationship with the lender that is based on confidence and trust.
Some guidelines to follow are set out below.
1. Decide how many financial institutions are to be approached.
Most probably the business bank would be included on any list, but always seek alternatives for comparison purposes as well as acting as a fallback should the need arise. The business owner should be happy with the lender and have confidence that further help will be forthcoming should the need arise, or understand clearly what criteria will be required to be met before further assistance will be provided.
2. Be proactive - discuss any financial requirements at the earliest stage
The timing of applying for finance will always be difficult; however, discussions should start at the earliest opportunity irrespective of being a start up business or an expanding company.
3. Start up Business Loans
It may be more difficult to convince a potential lender of the viability of a business venture when it is in concept stage, however, that is an appropriate time to commence discussions. It may well be difficult to obtain loans at this time without substantial guarantees, however, the alternative is to start a business with little finance, perhaps struggle to develop the business, and have the business viewed with extreme caution.
4. Personal Investment
It will almost certainly be necessary to demonstrate to the prospective lender that you have confidence in the venture by providing some funding from your own resources. This funding will add greatest value when forming part of the total funding requirement package. If it is a stand alone cash injection, consider the implications of gaining further funding after this source has been expended.
5. The Presentation
First impressions will be important, so the business owner should be well prepared for a Loan Application meeting. Practice interview techniques and approach the meeting in confident mood. Remember the bank will not only be investing in the business but also in the ability of the owner to deliver on the business plan. The loan applicant should demonstrate that he/she posses all necessary skills and experience to execute the plan and have a viable and acceptable fall back position should planned results not materialise.
6. Look and Act Professional
The loan applicant’s appearance at meetings will be critical. Wear a smart suit, be well groomed and act professionally throughout the meeting.
7. The Application
The proposition in support of the loan application should be viable. Usually this will be in the form of a business plan that will document the aims of the business and provide credibility to the accompanying financial statements, including cash flow forecast. In many cases the business plan will have been prepared by the business accountant.
However, the ownership of the document and its content should be clearly demonstrated be that of the business owner. Research into the market areas will have been undertaken for inclusion in the business plan.
The owner should be familiar with the data, understand the competition and the barriers to entry and exit from the markets. This will allow questions to be answered informatively and demonstrate a confident knowledge of the marketplace. It will be desirable for the owner to understand fully the impact on the cash flows of the planned actions outlined in the documentation. Suspicion will be cast upon the application if the timings of actions detailed in the report are not reconciled with movements in the cash flow forecast.
Much work will be required before a substantial loan application is made.
Seek professional help as necessary in the preparation of plans but remember the plans are of YOUR business future and you should have a detailed knowledge of why the application is an acceptable risk to a bank.
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