Tips for a successful finance application
Four out of five unsuccessful loan applications are turned down because the business either can’t show how it will repay the loan or it already has a poor track record in making repayments.
Banks are looking for business plans and projections that are comprehensive and realistic. Your business plan should clearly demonstrate that you understand your market, income and costs. If your business has a troubled history, such as bankruptcies or county court judgments, it is essential to be open about what went wrong and to outline the measures you have in place to ensure it doesn’t happen again.
The UK’s five largest high street banks have put together their top tips for ensuring your application has the greatest chance of success.
1. Develop a strong business plan Demonstrate a clear grasp of your financials, emphasising your ability to meet repayments. Show that you have thoroughly researched your market and your competitors. Identify clear routes to market, highlighting when you expect money to start coming in.
2. Build a good financial understanding
Make it clear that you understand your numbers, outlining what you need the money for and how you will pay it back. Research what goes into a sound balance sheet and cash-flow projection, work with an accountant or a business mentor to develop your knowledge and skills in these areas.
3. Check your track record
A bank will take into consideration the way your business has managed its finances in the past when it assesses your application. If you believe your credit rating is incorrect or inaccurate, you can challenge it.
You should check your business’ and your personal credit ratings before making an application.
There are three main consumer credit reference agencies in the UK: Experian, Equifax and TransUnion. You should check the information that all of these agencies hold about you is accurate. They will be able to help you find out more about your credit rating and the key elements that might affect it.
4. Be honest
Don’t underestimate how much money you need. Coming back to the bank for further funding will be more expensive and it may also affect the bank’s confidence in your ability to manage your company finances. Avoid overestimating revenues and undervaluing the costs you will incur and remember to include the living costs you will need to take out of the business.
5. Stay in touch
Keep in contact with your bank and give it any additional information it asks for to help it make a decision. Ask for feedback on your lending applications and how you could improve them and if you are declined ask why so you can understand the lender’s reasons. Remember, a ‘no’ may not mean a different lender cannot help you or that you will be turned down in the future. It’s important to keep checking what other banks offer to small businesses because your bank may be willing to improve its offer if you have other quotes.
A good understanding of the options available is an essential starting point and enables businesses to select the type of finance that is right for their circumstances and plans.