Access to finance is one of the most important issues facing any small business owner. Without the right finance facilities, many businesses will struggle to survive.
The picture remains pretty bleak for business owners. Many report an inability to get the credit they need through conventional sources. So where should you be looking for finance, and how can you maximise your chances of getting it?
Don’t be scared of banks
Constant talk of small businesses’ inability to get bank loans has put many SME owners off applying. Indeed, this may account for the perpetual discrepancies between banks’ reports of credit availability and the apparent reality for most small business owners. While banks insist that credit is available, lending figures seem to demonstrate that relatively few businesses are actually taking advantage of it. This is, in great part, simply because many business owners presume their applications will be unsuccessful.
You should not be scared of the banks. If you can demonstrate that your business is a viable prospect, and that you will be able to pay back what you owe, you still stand a relatively good chance of getting a loan. Or, to put it another way, remember that banks are profit-making organisations. They will lend to you if they think they can make money from it. For this reason, if you need a loan, the bank is still a pretty good place to start.
Make yourself attractive…
That said, lending conditions for small businesses remain very tight indeed. In order to stand a chance of being successful in your application (and, indeed, of being offered a loan at anything approaching an affordable rate) you need to make your business as attractive a proposition as possible.
A properly considered, realistic business plan that shows viable growth prospects is a fundamental necessity here. In addition, you will almost certainly need to provide cashflow records and forecasts to demonstrate that the repayments will be affordable.
Broadly speaking, you are trying to prove to the bank that your business has a future (for at least as long as the term of the loan), and that it will be able to afford the repayments. You should also remember that banks will often consider the financial position of directors, particularly in the case of very young businesses. As such, you should be prepared to have credit checks performed on your personal records, in addition to those of your business.
…but don’t overdo it
Of course, you want to make your business as attractive a lending prospect as you possibly can. But it is absolutely vital that you do not stray over the line that separates ‘effectively presenting information’ from ‘stretching the truth’.
Remember that everything you write down on your application will be checked. The bank will at the very least conduct a credit check, and this will identify things like late payment or previous defaults. It is likely, though, that you will also be asked to provide verifiable records that demonstrate your ability to pay – so it will become clear pretty quickly if you are overstretching your business by taking on extra credit.
Remember alternative finance
It is worth remembering that bank finance is not the only option available to you. There is an increasingly broad range of alternatives, some of which may actually be better suited to your business.
Perhaps the most interesting new alternative to bank finance is peer-to-peer (or P2P) lending. This technique allows you to bypass the banks and instead borrow from ‘peers’ – that is, individuals or organisations with money they want to invest by lending it to businesses.
P2P lending has a number of potential advantages. To begin with, the ability to circumvent the banks altogether is not to be sniffed at. Many borrowers find that they receive much better service in a P2P arrangement, and feel much more personally connected to the lender. Even better, P2P lenders tend to want to build a relationship with businesses that banks often simply do not bother to forge. The benefits of having a lender that is sensitive to the needs and realities of your business cannot be overstated.
Access to finance is a major issue for small business owners. While the picture is gradually improving, it remains remarkably difficult to get the cash you need. If you are in any doubt about your options, you should speak to your accountant.