We all know that post-COVID, there will be a very challenging economic environment with many businesses struggling. While relatively low-interest rates mean banks are flush with potential business finance, they will often make you jump through many hoops when applying. Many people will understand this cautious approach, but we believe this is sometimes too cautious. So instead, we prefer to get to know those behind the ideas, the entrepreneurs of today with the ideas of tomorrow.
In this article, we will look at different types of business finance, collating the required information and how to get a business loan.
How to apply for business loan
Whether you are considering approaching us for business finance, or a traditional bank, the process is the same. First, we need to know that you understand your business, you have a sound business plan, and there is potential upside. Then, as a responsible lender, we will consider all business loan applications on their merits, discuss the pros and cons and look to secure finance for your venture where possible.
In theory, the application process is relatively simple:-
• An application form is completed • Lender undertakes a credit check • The business plan is considered in detail • The applicant is informed of the decision
When you see the application process, it is relatively straightforward and not difficult to understand. However, there are several factors behind the scenes which may enhance your chances of a successful application.
Presenting your case with facts and figures
Unlike many traditional banks, we prefer to build long-term relationships with our clients. This may involve personal finance/business loans or both. Even though we prefer a more personal approach, the business idea/reason for additional funds still needs to make commercial sense. So, when applying for a small business loan, you should be in a position to present the following information:-
Whether you are looking to refinance or expand an existing business or starting a new one, you will need a business plan. Many entrepreneurs prefer to keep this information “in their head” but finance providers need to see how you are thinking in reality. The best business plans provide backup for any assumptions and estimations and sources for facts and figures. Your business plan needs to be credible; otherwise, you will likely fall at the first hurdle.
Why do you need the finance?
There are many different credible reasons why you might be looking to apply for a business loan. Therefore, it is essential to be honest when explaining why you need the finance and what you plan to do with it. Upon further consideration, you may find that there are different ways in which finance can be raised for an existing business.
Over the years, we have discussed business finance with many of our clients, had those honest conversations, and in many cases have a long-term active relationship. It is vital that both parties are honest and upfront from the start.
Whether you are self-employed or your business has been set up as a company, you should be in a position to supply business accounts and bank statements. If you are looking to raise finance for your new business, this is different. However, even in that situation, we would still require cash flow forecasts as the business advances.
A detailed look at an existing business, or chat about a new business idea, could open up an array of different financing opportunities. As well as the ability to provide commercial loans, we have many contacts in the world of business and venture capital.
This is an area of the business loan application process where many people struggle. They may not be forthcoming with vital information, which may or may not impact our final decision. Even though there may be a temptation to keep back some information, there needs to be impeccable trust between both parties from day one. Put yourself in our shoes; if at a later date we were to find that you either lied or were “economical with the truth” on your application form, this does not bode well for long-term mutual trust.
We have dealt with clients who have been bankrupt in the past, experienced immense financial struggles, but we have still managed to secure finance for them. So while past difficulties will impact the application, they are not the be-all and end-all.
Whether your business will trade as a company or you are self-employed, it is essential to monitor your credit rating. The vast majority of new business ideas can be some months in the making, giving you time to build or maintain a good credit history.
Even though a company is considered a separate legal entity in the eyes of the law, when raising finance, you will still be expected to act as a personal guarantor for the loan. Until the company can stand on its own 2 feet, you may well be considered one and the same when it comes to finance and security.
Ensure your application form is accurate
When looking at how to get a business loan, you will undoubtedly come across a variety of different websites and advice. However, one fundamental issue often overlooked is ensuring that your application form is accurate and gives a fair impression. The slightest mistake or omission could have a considerable impact on your application and ultimately lead to rejection.
Where the issues are “relatively minor”, we will discuss these with you, but where there is an impression of deceit or dishonesty that would be the end of the story. We prefer to build long-term, mutually beneficial relationships with clients. This involves a significant degree of honesty and integrity on both sides.
Are you eligible for grants?
The majority of our clients struggle to obtain business finance from traditional banks but have credit ratings far better than those required for payday lenders. Consequently, we are positioned in the middle, offering attractive terms and competitive rates based on individual circumstances. One factor which may help you to raise additional business finance is your eligibility for government grants.
As grants are non-repayable, they are a handy means of shoring up your balance sheet and adding additional security to your business. Again, we have experience in this field; we can check your eligibility for different grants and help you raise external finance.
Know Your Facts, Know Your Figures
When presenting your business plan, we prefer to sit down and have a face-to-face meeting. This offers you the opportunity to ask questions, and we can also quiz you about your business plans and how any finance would be used. You must know your facts and figures for this meeting as unfortunately, we don’t get a second chance to make a first impression.
Those who have a deep-seated knowledge of their business, prospects, and how finance will be used are more likely to be successful. Several business loan calculator apps out there can help you put together your business plan and ensure that your application is affordable.
Business finance at Alternate Finance
We have three different types of business-related finance, excluding personal loans, which may be of interest when looking to raise capital. These include:-
Small business loans
Unlike many traditional banks, where clients are simply numbers, we prefer to create long-term working relationships. So, whether you are looking to expand your business, supplement short-term cash flow or have a new business idea, we are certainly interested in listening to your plans. For example, many businesses require short-term capital to acquire equipment or cover expenses until customers pay their bills. We can do that!
You will find our business loan calculator very useful, allowing you to research loan amounts, different durations and monthly repayments. This will give you an idea of the impact on your short to medium-term cash flow. While we are a responsible lender, we also appreciate that short-term difficulties can mask the long-term potential of a business.
Many people automatically assume that venture capital is for huge companies, not small businesses or start-ups. Well, over the years, we have built up many solid relationships with financiers and advisers. Consequently, not only is there the possibility of arranging venture capital, but we may be able to secure a mentor for you.
Any direct involvement in your business would require a formal shareholders agreement to protect all parties. External private investors need to see a return on their funds and are constantly looking out for new entrepreneurs. Could that be you?
One of the more common reasons why businesses raise additional finance is to acquire new equipment. We appreciate it can be tricky to negotiate a purchase before you have the finance; therefore, we run a pre-approved scheme. If your application is successful, this will allow you to arrange new equipment as a “cash buyer”, which should encourage a healthy discount.
Some entrepreneurs have genuine concerns regarding equipment financing, but it is simply a case of comparing and contrasting the pros and cons. In many cases, a new piece of equipment for your business can pay for itself in a very short space of time.
How to get a business loan
Successful business loan applicants are those who present detailed business plans, which are, and this is important, believable. There must be extra attention to detail when filling out the application form in an open and honest manner. As you’ll see above, we have several options for those looking to raise capital for their small business.
In some cases, we may wish to become actively involved in your business as a long-term partner. In reality, there are many different options available when looking to secure a business loan. Using our business loan calculator will give you an idea of repayment terms, but we prefer face-to-face meetings. This provides us with the opportunity to sit down, discuss ideas, pros and cons and ensure that everybody is on the same page. Then we can move forward together…..
Mark previously enjoyed 15 years as a stockbroker/financial adviser and still maintains a strong interest in all things financial. Over the years, he has written about subjects such as property finance, loans, pensions, insurance, stock market investments, tax planning and more. Mark believes it is essential to keep up with the latest financial regulations and adapt your finances accordingly, something he portrays in his financial articles.