We all remember the economic crash of 2008 and the effect that this had on financing. Indeed, for a while, it was almost impossible to borrow money for either personal or business use. Things are on the up now though, and businesses are in a much better position when it comes to accessing finance deals. It’s not all plain sailing, however, and some time and effort need to be applied in order to satisfy the financiers that your business qualifies for a loan. Read on for our four tips to help any business secure the finance that they require.
1.Do You Really Need It?
Before you start to make applications to financial institutions you need to be sure that your business does require extra capital and more so be clear that this capital should be raised through a loan, essentially, is it the right thing to do? The best reasons to consider taking out a loan is for expenditure that is actually going to work to grow your business. New equipment, finance to meet expansion plans or new premises are all legitimate items to consider taking out a loan for, as they should lead to increased profits to help you meet the costs of paying back the finance. It is not prudent to take out a loan for items that are not essential to your business growth.
2. Understand The Bank’s Requirements
When banks are considering loan applications the main thing they take into account is risk. You need to prove to them on application that there is little to no risk that you will default on a loan, and that ultimately they will make their money back plus interest. It is a good idea to know what factors the bank might take into consideration when assessing the risk level of your application and to formulate a response to this in advance should they question you about it. For this purpose, banks are likely to consider how risky the industry you are competing in is and might want to understand what you would do about any industry-specific obstacles that crop up. They might also consider the length of time you have been in your industry and any debts or liabilities that are already in existence. They will also consider how the economy as a whole is performing and whether your company could cope with any significant changes to the market. Your personal finances will also be taken into account including whether you personally would be able to meet the loan requirements if necessary. It is best to be prepared with answers to all these questions.
3. Know Your Pitch
Many loans are rejected simply because the pitch has not been fully thought out. It is not enough to state to a bank that everything is great, the industry is safe and there is plenty of capital behind you as this might cause the financial institution to question why you actually need a loan. The application and business plan is the place where you build together all the information you will need for your pitch. Take time to know it, make sure that your plan makes good sense and that you address any shortcomings. The ability to talk through and defend your plan along with articulating how you will deal with any obstacles will help make presenting your pitch and impressing those banks easy.
4. Consider Alternatives
Securing finance for your business does not mean that you have to accept it, you are still free to look around for a better deal. If other banks aren’t offering more favourable terms you could always consider online lenders or even private investors, although these loans often come with higher interest rates.