5 questions you need to answer before applying for business finance

If you lack the necessary financing to support your business’ development, you’ll, no doubt, find it very difficult to achieve your short- and long-term goals. But, to get around this obstacle, many business owners choose to explore how applying for business finance could help. Collectively, business finance is a vast and diverse tool that allows you to complete virtually any business related project. However, before you rush in and accept the first offer, you need to step back and get some clarity. If applying for external funding seems like a wise choice, these are just 5 of the many questions you need to answer as soon as possible before applying for business finance.

1. Do you actually need business finance?

Before choosing to go down this route, you need to be certain that applying for business finance is the most appropriate decision for your business. By that, you need to think, could your existing cash flow take the strain and support what you’re hoping to achieve on its own? If the answer is yes, great. However, if you suspect that you’ll be forced to dig into your personal savings in order to raise the rest of the required capital, then perhaps applying for business finance could be the wisest decision to make.

Looking to bring new equipment into your business or gain access to a lump sum? Confused about what opportunities may be available? Apply for Business Finance or learn more about how your business could benefit.

2. What are you looking to achieve through applying for external funding?

If you do find that there are solid grounds for applying for business finance, you must fully consider the purpose of the funds. Make sure that you have a well-thought-out growth strategy in place and assess what aspect or area of your business stands to gain the most from the use of business finance? Do you need new or updated equipment? Are you looking to move into your first premises? Do you have uneven cash flow? Or do you wish to replenish your cash reserves using a cash injection? If you’re hoping to start an urgent project in the near future, business finance can also be used as a buffer against the risk of your business experiencing a downturn whilst it’s in progress. As such, pinning down why the funds are needed is vital since it will allow you to begin narrowing down your search towards a suitable business finance solution that takes into account your requirements.

3. How urgently does your business need the funds?

Time is precious in business, but it’s also a vital aspect to consider when applying for finance. As always, you’ll want to be able to spot and anticipate the need for external funding well in advance. However, there may be times when you need it much sooner than you first thought. You may have an overdue utility bill or tax demand that needs to be settled sooner rather than later. Or, being caught up in the pressures your day-to-day operations, you’ve overlooked another financial obligation that now needs to be urgently resolved. Although some business finance products can take a week or more for a decision to be made, there are some products available that can be agreed much sooner. Depending on the complexity of your request, some products could be established in as little as 48 hours. However, if you can afford to give yourself some more breathing room, this could help you negotiate more favourable terms and conditions.

4. How much risk is involved?

Of course, you’ll also want to take into account the potential risks involved. As well as assessing your sector’s Standard Industrial Classification (SIC) code, you’ll want to make sure that your personal and business finances are in order. Lenders will always exercise due diligence and carry out all the necessary checks. Therefore, if you have any CCJs, arrears, Accelerated Payment Notices or unpaid debt, try to get them resolved beforehand as this will affect your credit rating. If you have adverse credit this can cause lenders to view your business as having a greater risk of default and can result in either a rejection or you paying an increased rate of interest throughout the agreement.

You’ll also want to consider whether you want to apply for a secured or unsecured business finance solution. Secured agreements mean that you’ll offer security in the form of unencumbered assets (equipment, machinery, vehicles or property), which can reduce the risk to the lender and help you gain a larger lump sum. However, if your business defaults, these assets will become liable for repossession. Unsecured agreements do not require you to offer security, however, they’re usually harder to qualify for and may carry larger interest rates as a result. Sometimes the lender may also require you and any associated directors to provide either a written or verbal Personal Guarantee.

5. How developed is your business?

Finally, you need to take note of which stage of development your business is currently at. Where you currently stand can affect the type of financial treatment that is appropriate for your business’ needs. For example, if you’re a start-up you may not be able to qualify for more advanced forms of finance until you’ve reached your 2nd or 3rd trading year. This is because these types of businesses are still trying to develop their customer base and may need to use what few assets that they do own as security. Plus, lenders also need to know how well your business is performing financially but, if you’ve got a limited trading history, that’s much harder to achieve. As such you may need to acquire Start-up Capital in the form of Investment Crowdfunding or Loan-Based Crowdfunding (Peer-to-Peer Lending). However, if you’ve progressed beyond the startup stage and are now looking for Growth Capital, the number of business finance solutions available to you may have expanded. As such you might be able to acquire products that could offer you more favourable terms and conditions.

Thinking about applying for Business Finance?

Making sure that your business has access to the funds it needs to develop and succeed can be a difficult and frustrating endeavour. There are so many aspects to consider that you might not know where to even begin. Although the Alternative Finance Industry has helped to expand the number of business finance solutions that are available, this has also made the business lending landscape much more difficult and confusing to navigate. However, you don’t need to deal with it on your own. Help is at hand.

At Rangewell, we have Access to Finance specialists working with over 350 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. We’re with you every step of the way. So if you’re looking to raise capital, stimulate growth or smooth out uneven cash flow, apply for a Business Finance solution today or find out more with Rangewell.