If you are a small entrepreneur, difficulties in obtaining a loan for a company can be one of the biggest obstacles you will face. Despite the improvement of the entire economy, the sector of small and medium-sized enterprises in the United Kingdom still suffers from a “credit crunch”. According to the statistics of the Bank of England, the amount of loans granted to small and medium-sized enterprises decreased in the first six months of this year by GBP 723 million, while it increased for larger corporations. One of the problems faced by small business owners is the strict lending policy of banks.
Banks today often ask for flawless credit history and have high security requirements to protect themselves against unpaid loans. For many small business owners, these requirements are very difficult to meet. Before you apply for a loan from a bank, it is important that you know what the lender is looking for and what you will need to demonstrate. This will greatly increase your chances of getting the money you need. It is also important to know the alternative financing options for small businesses, thanks to which you will choose the most suitable form of financing for your business.
Forewar always insured, so read on!
What should the Applicant ask for a loan?
How much evidence in the form of documents you will have to present to the loan granting institution depends in part on the type of your business, size of the company, seniority, as well as the amount you are applying for. The type of loan requested is not without significance. However, in general, you will have to prove that the company has good financial liquidity to allow easy repayment of the loan. In addition, the lender will need to certify that you have sufficient funds, financial reserves and personal collateral to protect yourself against fluctuations in the industry.
If you have been active for a short time, you may also be asked to prove that you have successfully run a similar business in the past. Prove Your Credit Credibility As you can see, the list of evidence required from the ideal candidate by loan institutions can be overwhelming for small business owners. On the other hand, lenders also want to profit, so if you can not meet all the criteria, they may be willing to compromise on some aspects of your application.
The first thing you should do is put yourself in the lender’s situation – try to imagine what they would like to see and hear from you. You should have a good answer for every question that can come during a conversation. Ideally, you would talk to a financial advisor before submitting your application. Professionals in the field of financial consulting help in the preparation of many applications similar to yours and can support you in drawing up the most effective application.
Develop a Business Plan
Creating the most comprehensive business plan is one of the best ways to prove to the prospective lender of the candidate’s creditworthiness. Your plan should present a detailed picture of the company’s finances as well as a realistic assessment of development prospects. Make sure that the figures and estimates are as accurate as possible because the lender will check your plan carefully. The optimal volume of a business plan is 5-20 pages, and great if it contains attached supporting documentation. These documents should include the company’s balance sheet for three years (if your business has at least a three-year internship), as well as profit and loss accounts, tax books, cash flow forecasts and details of financial receivables and liabilities.
Clear Your Credit History
If you want your small business to be credible credit, you should have good credit reports and credit history. Be sure to order a credit report from one of the three major agencies involved – Dun & Bradstreet, Corporate Experian or Equifax Small Business – at least six months before the planned date of application submission. This will give you time to check the details and correct any errors that could adversely affect your credit history. In addition, you may need time to improve your credit history based on what you learn.
Perhaps you will want to reduce the amount of your outstanding debts as much as possible, or at least distribute them to many lenders and thus get rid of one large debt. You can also consider using the commercial system to build your company’s credit history. We are talking about software-based platforms that guide you through the process of building your business credit history, offering information on the establishment and registration of a company, compliance in the company and the creation of an account in the most important agencies dealing with credit reports. Some systems allow you to regularly check your company’s credit reports, which allows you to maintain the best possible credit rating of the company. Alternative Forms of Financing
Whichever lending institution you choose, make sure you have accumulated as much evidence as possible on your ability to pay back the amount you are applying for. If, after reading this evidence, the lender finds that you are not the right candidate, do not despair!
There are many alternative forms of financing for small businesses that are not able to meet the stringent criteria of traditional banks. Among them, you can exchange a down payment for a merchant, lease, discount invoices, social loans, etc. These are usually loans with shorter repayment dates and higher installments, but also less stringent requirements for applicants. As such, they can be an excellent source of financing for small businesses in a situation where other opportunities are running out, and also serve as bridging loans to help build creditworthiness. There are many types of business loans available, so check all the options before choosing the most suitable form of financing for you.