Thinking of applying for a business loan? In order to improve your chances of having your business loan approved, we’ve collected all the most important information into 7 key areas. Read on with Personal Loans Now to find out.
- The timing of your business loan application
- Researching which financial product you want
- The preparation of a business plan
- Deciding how much you need to borrow and why you need it
- Your business & personal finances
- Investing in your own business
- Understanding the terms & conditions of the loan
- Whether there are person loans for businesses
It’s a truism that you need money to make money. After doing as much as you can with the funds at your disposal, you might have decided that it’s time to take the next step and take out a business loan. Maybe to take on staff, improve your business premises or to expand the range of products and services you offer. If you are thinking about starting a self employed business you can try get a personal loan for the self employed.
What You Should Know About a Business Loan
However, with banks and other financial institutions increasingly reluctant to lend money, what can you do to make sure your loan application will be ok? In this article, we’ve collected our top 7 tips on what to do and not to do when applying for a business loan to increase your chances of approval.
1. Timing is the Key
One of the most common mistakes that self-employed businessmen make is to apply for a business loan too soon. There’s no set time since it’ll depend on the nature of your business and how well it started off. However, you have to prove to the financial institution that you have a thriving business venture which you tried and tested. Remember they want to know that it won’t be a risk for their money or you’ll be turned down.
2. Research the Financial Products on Offer
Before applying for a loan, you should do your research like for any other financial product. You might have built up a relationship with your bank, but this isn’t the time for brand loyalty. When shopping around, don’t just focus on the well-known High Street banks because there are many new entrants to the market. There is also the option of a government-backed loan of between £500 to £25,000 to start or grow your business.
Look for the best deal on the market and think about fixed vs. variable interest rates; repayment holidays and any charges for early repayment. There is a range of personal loan interest rates available.
Also, think about the best loan to suit your needs and whether you’re interested in short- or long-term financing. Would Invoice or Asset Finance be the most suitable solution for the objectives you have in mind for your business?
3. Preparing a Business Plan
Many business loan applicants are woefully underprepared for their loan application without a business plan or with a skimpy one lacking details.
You must take your time to prepare a business plan which describes your business, its objectives, strategy, market it’s in and projected financial forecasts (cash-flow analysis, profits and losses, etc.) The plan should be 8-12 pages of well-laid-out clear, concise information written on one side only. Any additional information (such as market research) you should put in an appendix, and you should include a summary highlighting the key points.
Some businesspeople choose to hire a professional to write their report. However, remember that you’ll have to present this to the lender. You’ll only be able to do this well if you have the in-depth knowledge gleaned from writing it yourself.
4. Deciding How Much you Need to Borrow & Its Objective
When reaching a figure about how much to borrow, don’t over-borrow as it’ll end up costing more in interest payments and might over-stretch your finances to make the repayments. On the other hand, you need to incorporate an amount for contingencies in case of the unexpected in your financial projections.
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When you meet the lender, you’ll also have to be specific about what you will use the loan for. You have to be able to demonstrate that the sum you borrow will make a difference to the day-to-day running of your business. It will also enable you to meet your needs and objectives. When you make this ‘pitch’, let the enthusiasm and passion for your business shine through. This will help your loan application a great deal.
5. Your Business & Personal Finances
As part of the proof of the way your business is going, you’ll have to provide the lender with documentation showing the current state of the financial situation of your business. You must make sure that these records are up-to-date.
As far as your personal finances, don’t underestimate the importance of your own personal credit history. Of course, the lender is interested in the projected sales and profits of your business. However, it’ll also consider the way you handle your finances. If you can’t cope with your own money, how much more reckless will you be with borrowed money?
If you have a poor credit record, then you should take the time to improve your score before you start approaching banks to take out a loan.
6. Put your Money Where your Mouth is!
Having a personal stake in your business will improve your chances of having your loan approved. If you have equity in your business or will put up some property as collateral, it’s felt that you’re more likely to do everything in your power to make a success of your business. Otherwise, the lender might be wondering why they should take on all the risks.
7. Read the Small Print before Signing
If your business gets the approval, you must make sure you understand all its terms and conditions before signing. Loans are complex financial arrangements, and you must query anything you don’t understand.
In this way, you’ll know all the different fees and charges the lender will impose. Make sure you understand if they’re one-off fees or recurring charges as the latter can be a drain on the finances of your business.
Another reason why you should have a clear understanding of the charges is that some banks include a series of terms you must adhere to. Such as the insurance policies you must hold. If you don’t, they can demand the immediate repayment of the whole sum lent to you. It’d be ironic if a loan led to the downfall of your business.
Are There Personal Loans for Businesses?
There are online companies which arrange non guaranteed loans for bad credit to businesses similar to the way that quick and small personal loans work. You specify how much you’d like to borrow and the duration of the loan and the loan provider will let you know the total cost of the loan. Some companies offer amounts of up to £120,000 and say that money can be made available in about an hour after credit and affordability checks.
Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion. Jack Welch
The most well-known is ezbob (www.ezbob.com) which is supported by the European Union Loan Guarantee Facility and is part of the COSME programme (Competitiveness of Enterprises, Small and Medium-Sized Businesses). There are certain eligibility criteria for a loan from ezbob such as you must be in trading for at least 12 months and have an annual turnover of £30,000 per year. The company is FCA-regulated, and they are completely upfront about all charges and total repayment.
Being self-employed and running your own business can be physically, psychologically and emotionally draining. You must have the help and support of the people around you; both personally and professionally. Without this, it’ll be much harder for you to succeed.
Building up a relationship with your bank manager or your lender can also make a difference as to how well your business does. Once you’ve established this relationship, they’ll come to understand your business values and potential. This will make your access to future credit facilities much easier since you’ll have a proven track record. As a result, they’ll give you further opportunities for your business to grow even more.