More than half of all first-time business loan applicants are turned down. Affordable finance is vital for small businesses, but all too frequently first-time applicants find it difficult to get the funding they need.
The banks maintain that they are willing to lend, despite businesses’ anecdotal evidence to the contrary. So, if you are making your first business loan application, how can you help to maximise your chances of success?
Your business plan is the cornerstone of your business loan application. It is important that this document is watertight – but it is vital that you pay particular attention to your financial forecasts. These sections will be pored over in detail, and it is important that your figures add up. You might consider having your financials looked over by an accountant or similar professional, who will be able to point out elements that you may have overlooked.
If your business is in its startup phase, it is highly likely that you and your fellow directors will be subject to just as much scrutiny as the business itself. You need to pay particular attention to your personal credit history, as this is likely to form a fundamental part of your application. Request your credit report from the major reference agencies, and make sure that there are no mistakes. Ensure that you make payments on time, as even a single late payment can result in your application being declined.
It is a common impulse amongst entrepreneurs to attempt to do everything for nothing. You might be tempted to borrow as little as you feasibly think you can manage with, on the assumption that the bank will be more likely to give you less. This is not, however, necessarily the case. Rather, the bank will want to ensure that you are able to make your monthly repayments, but also that you have the resources you need. Be realistic, then, not only about your ability to repay but also about how much cash you need in order to ensure that your business is viable.
Wherever possible, try to communicate in person with a representative of the bank you are applying to. Many banks now provide relationship managers to their business clients and, while lending decisions are still generally made centrally, going through one of these individuals may provide concrete benefits. Real people may be more sympathetic to your application than a computer algorithm, so try to maintain personal contact as much as possible.
Finally, it is important to remember that bank loans are not the only means by which you might finance your business. You could also consider alternative sources of finance such as the government’s Start-Up Loans scheme, loans from friends and family, or invoice finance. Read more in our finance guide for small businesses.
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