10 questions to answer before you apply for business finance
Getting your application for business finance approved is a major step towards achieving strong growth and sustainability. It enables you to drive your business forward and stay one step ahead of your competitors. Yet, although your first thought might be to seek more traditional forms of funding, more and more SMEs are now seeking alternative funding opportunities outside of their local high street bank. So as the Alternative Finance Industry continues to grow and become ever more mainstream, your business could gain access to a diverse range of finance solutions and providers quickly and hassle-free. However, making sure that your application does get approved can be tricky. So if your business needs access to additional capital but you are unsure how to get that all-important ‘Yes’ from lenders, here are 10 questions you need to ask yourself before placing an application.
Why does your business need finance?
If you’re looking for business finance, the first thing you need to ask yourself is ‘What aspect of my business needs financing?’ It’s vital that you get your head around this as soon as possible since the purpose for any agreement will determine which type of finance is most suited to your business needs. So whether you’re looking to acquire new equipment, carry out refurbishments or even to provide working capital support, you must make certain that you fully understand why you are seeking business finance in the first place and what it will mean for your business.
How much funding does your business need?
Next, you need to figure out how much funding your business needs. Although asking for either a large lump sum or advance from lenders can be daunting, being specific is your key to success so don’t beat around the bush. If, after calculating the total cost of any given project, you need to borrow £250,000, for example, then that’s what you have to ask for. Requesting a lower amount that doesn’t cover the cost of the project could lead to you having to set up another agreement in order to gain the rest of the necessary funds, which can cost you more in the long run.
How much money do you have saved?
Another aspect to consider is whether your business has any savings. In order to increase your chances of gaining an acceptance, lenders will want to know if you’re able to contribute a portion of your own funds, although this can be difficult if you’re an SME working with a tight budget. But if you can, this will show lenders that you have a stake in the project’s success and can be trusted to settle the agreement on time.
How much money is your business making?
You also need to be clear about how much money your business is earning. Before placing your application, you’ll need to collect your business’ trading information, cash flow reports, profit and loss statements and balance sheets. This will enable lenders to see how well your business is performing and whether you can safely afford the repayments on the agreement. If you’re seeking business finance in order to reinforce your sales, you must convince lenders of the viability of the project and its goals.
Is your business coping with its financial obligations?
Lenders will also ask to see information regarding how well your business is coping with its financial obligations. They’ll be looking into whether your business has any outstanding debt and when it’s expected to be repaid. If you have a reliable history of settling debt on time this will increase the strength of your credit score, encouraging lenders to regard you as a trustworthy borrower. But if you need help managing your financial obligations there are plenty of funding opportunities available that could help.
Do you have a carefully thought-through financial plan?
Before offering you finance, lenders will want to know if your business can be trusted. One way of convincing lenders is by presenting them with your financial plan. This should be as detailed and concise as possible, granting them an insight into your Cashflow Forecasts and Profit Budget. If you don’t have a financial plan that’s detailed and easy to follow when meeting lenders, they may perceive your business to have a greater risk of defaulting, giving them an excuse to reject your application.
Are you able to follow this plan?
If you have got a financial plan in place you must ensure that you follow it to the letter. You should be able to demonstrate to lenders that you’re able to spend and operate within its means by coupling your financial plan with your past accounting records. However, don’t let your financial plan curb your enthusiasm either. You should be able to show that you’re optimistic, ambitious and have a strong desire to push your business towards ever greater feats.
Are you providing security?
Many business finance solutions can be described as either Secured or Unsecured products. Choosing to use a secured solution can help reinforce lender confidence, helping you to gain larger lumps sums. However, this means putting unencumbered asset such as equipment, machinery, vehicles or property at risk of repossession should your business default on the agreement. Meanwhile, Unsecured solutions expose lenders to a greater amount of risk since you’re not required to present assets as collateral. This causes lenders to be more cautious and charge a higher amount of interest.
Have you clearly explained what your business is all about?
Although lenders may have experience in a number of different sectors, you must ensure that you’re clearly explaining what your business is all about. Inform them clearly on what goods and services your business provides. Using the information you’ve gathered on your market, where does your business sit? Are you the only business providing those goods and services in your local area, or are you operating in a saturated market? Offering lenders as much clarity as possible will help convince them of the viability your business and that you’re the right person to make it work.
Where do you stand with your personal finances?
Finally, you can also use your personal finances to reassure lenders of your ability to afford the agreement. If you’re able to show current account statements for at least 6 months or able to keep up with an existing personal finance solution on time, for example, it’ll help present you as a trustworthy borrower. But if there are any issues, you must be upfront and open about them. Telling lenders about any CCJs, outstanding debts or personal liabilities (divorces, school fees, drop in income, etc.) beforehand can leave a good impression on lenders and bolster the credibility of your application.
Looking to apply for Business Finance?
Applying for business can be a daunting process for any business owner. However, despite the challenges that may be involved, making sure that your business has the funds it needs to develop is necessary. However, with steadfast determination and a strong vision, there’s no reason why you can’t succeed. All you need to do source an agreement that’s suitable for your business needs and current financial situation. But with so many different finance products to choose from, how can you be sure you’re making the right decision for your business?
At Rangewell, we’re an Access to Finance specialist, working with over 300 lenders offering more than 23,000 business finance products. Our services are free to use and we’ll also guide through the application process. So if you’re looking to raise capital for your business, apply for a business finance solution today or find out more with Rangewell.