It can be difficult to obtain finance for a business, especially during a weak economy. Banks have set criteria for lending and if you do not fulfill the requirements, you are likely to be turned down. There are some steps you can take before applying for finance, which will help to improve your chances of a positive outcome.
Identify the purpose of the loan
Decide what you need the loan for, and the amount you require. Rather than make a rough guess at the amount required, calculate requirements based on the costs of your intended project, allowing a little extra in case you have underestimated the amount needed. Be realistic and show the bank how the money will be spent, detailing every aspect. A business plan will be required to demonstrate how the money will benefit the business and how it will produce a return on investment.
Consider how you will repay it
Before applying for a business loan, you have to be sure that you can meet the repayments. Produce a cashflow forecast so that the bank will see that you have a viable company and have thought about making repayments. The banks are mainly concerned with whether or not they will get their investment back, with interest, without putting their capital at risk. Produce forecasts to outline the outcome if your sales were lower than you had expected, or a client does not pay their invoice. Demonstrating how you would deal with the worst case scenario may help strengthen your application.
Lower the risk
If you can reduce or remove the element of risk for the bank, you may be more likely to get a business loan from them. There are a number of ways that this can be achieved.
The first method is for the items you are buying with the finance to be used as collateral, although some institutions won’t accept this as security. You could offer something from your personal assets as collateral, like your home or car. Consider the risk carefully, as if the business fails, you will lose your assets. Before applying for finance, consider whether you can afford to contribute to the costs of the project. If you can put in some of the money yourself, the bank may be more likely to agree to loan the remaining amount.
Be sure of the facts
Make sure that you know all the important data of your company without having to refer to a number of documents. Your profit and loss statements, cashflow, and turnover should all be memorised if possible. If you do need to refer to a document, make sure you have the information to hand so that you’re not scrabbling around.
To maximise chances of being approved for a business loan, you need to know how much you want to borrow, the length of the repayment term, the purpose of the loan, and must show that you can repay the finance even during difficult times.