Securing a loan for a small business can be an important step in expansion, meeting operational needs or simply stabilising cash flow. Often many business owners do not consider an application due to the perception of it being a complex and overwhelming process. However, this article is our guide to show the simple steps that can be taken to successfully secure a small business loan.
- Understand the exact finances required
Before applying for any form of business finance it is essential to identify why it is needed and how much is required. By knowing the specific needs, a business can ensure they borrow the right amount over a term that suits their individual needs.
- Explore all the options
There are several different financing options available:
- Term loans – fixed amounts where repayment is over a set period, this solution is ideal for significant investments.
- Line of credit – a flexible solution which allows the borrowing of funds as and when it is needed.
- Equipment loans – dedicated funding for the purchase of machinery and equipment which will be considered as a business asset.
- Check the credit score
Lenders will evaluate the credit worthiness of a business to assess their ability to repay the loan. Maintaining a strong credit score will increase the chances of a successful application and can also lead to better terms and potentially lower interest rates. It is recommended to continually monitor the credit score and delay an application if steps need to be taken to improve it.
- Collect all documentation
To help with streamlining the application process there are several standard documents which should be collated:
- A Business plan
- Financial statements (e.g. profit and loss, balance sheets, etc)
- Tax returns
- Bank statements
- Legal documents (e.g. business licences and incorporations)
- Consider collateral
On occasions, and with a significant loan value, a business asset might need to be used as collateral. Items such as property, equipment or inventory can be used (but of course if there is a failure with repayments then the collateral can be seized). A business should have a clear understanding of what can be used as collateral for the application.
- Research the best options
Not all lenders are the same and there will be pros and cons with each option offered. Also, it is not always about accepting the lowest rate, explore all of the options and make an informed decision based on all possible circumstances.
- Business plan
Having a well-crafted business plan is a must. It will provide lenders with credibility, will demonstrate growth potential and will show how future funding will be used for achieving forthcoming growth. Financial projections and detailed strategies will show a lender that careful thought and consideration has been given to how any funding will contribute to the ongoing success of the business.
- The application
Once stages 1 to 7 have been completed the final step is the application. Everything should be double checked to ensure it is accurate. Questions might be asked by any future lenders, so the business should be prepared to answer any questions around financials, projections and the business pla
Securing a small business loan is a significant step towards the ongoing success of a company. By preparing thoroughly, understanding options and submitting an accurate application, the chance of a success is much higher. Patience is key to any application.
Our recommendation would be to speak with business finance specialists, we can take care of the entire application process. If you have any questions or would like help with a business finance application, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.
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