Almost every small business will need to borrow at one point or another. But not every small business lending application will be approved. Here’s how to ensure that you are among the lucky ones.
Have your documentation in order
The bank or finance company will almost certainly want to see a range of business documents, including your articles of incorporation and information about the directors.
Maintain up-to-date financial records
Your lender will wish to see that the business is profitable and not too highly geared – so will very likely request sight of your balance sheet, profit and loss accounts and cash flow forecasts. In addition, some lenders may ask to see up to three years’ tax returns in order to ensure that your affairs are in order.
Clearly explain why you need the loan
Almost certainly, the finance company will ask why you require the loan and will not be impressed with a vague or generic answer. If you’re borrowing for growth, demonstrate a clear projection of what you expect to happen. If you’re seeking the money to buy a major asset, explain how that asset will benefit your business and transform its future.
Demonstrate that your business is stable
Chances are you’re seeking a small business loan to grow the business, but you’ll need to show lenders that growth is sustainable. In other words, will you be able to handle all that new business activity whilst continuing to service your existing customers? If you don’t have sufficient people to cover all the bases, your company could be heading into trouble and lenders may not be keen to do business with you.
Keep your personal finances in order
Whilst the lender will primarily assess the financial health of your company, they may take your personal credit score into account if the business is young or marginal. Make sure you stay on top of your mortgage payments and other commitments and avoid maxing out your credit cards, whether it’s to purchase business assets or finance personal spending.
Talk to alternative lenders
When banks refuse to lend to small businesses, alternative lenders will often help as they apply different criteria. With asset-based finance, you can borrow against the value of your premises, plant or equipment, making your credit score and documentation far less important. Meanwhile, invoice factoring or discounting can permanently tame a troublesome cash flow by enabling you to borrow against the value of your invoices the moment you issue them.