By Carl Faulds
Since the financial crash of 2008 and the subsequent tightening of lending criteria, getting a bank loan hasn’t been the easiest thing to do. If you’re going to apply, you need to be on top of your game, have all your ducks in a row – and numerous other business clichés we won’t mention. Or put another way, here are the things you should bear in mind when seeking a business loan:
Tidy up your credit report. A good credit score can make all the difference when applying for a business loan, so contact a credit bureau and find out where you stand. If your score is marginal or poor, this is not always an issue, but you can improve it by closing down unused lines of credit, paying down debts where you can and carefully controlling credit card usage.
Have your tax returns to hand. The bank may wish to view both business and personal tax returns to confirm that you keep records carefully and that you are up to date with your tax payments.
Write a convincing business plan. Most lenders will wish to see a costed business plan, indicating where you see the company going and what you intend to do with the business loan. Your business plan should ideally include profit and loss projections, anticipated cash flow and a balance sheet.
Draft strong CVs for your senior management team. Banks won’t always wish to see CVs for yourself and your colleagues, but if the decision is looking marginal on your business loan this could help to sway things.
Disclose your personal background. As part of the business loan application process, the bank will wish to know your previous addresses, any other names used, any criminal record, any outstanding CCJs, and your educational background.
Prepare some collateral. If you’re looking for unsecured finance, then collateral clearly isn’t an issue, but this type of borrowing can be expensive and difficult to secure. For a secured business loan, the bank will be looking for strong collateral – and if your business can’t provide it, they may insist on securing the lending on your home.
Collate your legal document. The lender may wish to look at your company’s articles of incorporation, annual returns, commercial leases and contracts with third parties.
Assemble your bank statements. Chances are the bank will wish to see at least a year’s business bank statements – and quite possibly the same for your personal account.
Get ready to answer some searching questions. Your lender will require detailed answers as to why you are applying for a business loan, what you will do with the money, which assets you intend to purchase and from whom, what other business debts you have, and who makes the key decisions in your company.
However, there is an alternative.
If you don’t wish to jump through all these hoops, you should talk to an alternative finance lender. Whether you’re seeking an emergency loan (with cash inside your account in under 24 hours), asset-based finance (secured on your current plant, premises or equipment) or invoice factoring or discounting (where you borrow against the value of your invoices as soon as you issue them), an alternative finance provider should be able to help you without all the questions and the paperwork.
Written by Carl Faulds
Carl is a business recovery specialist. As Managing Director of Cashsolv, he offers advice and support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business.