Five top tips for those looking for a business loan

Conrad Ford gives five pieces of advice for small companies to bear in mind before pursuing debt finance.

 Five top tips for those looking for a business loan

Business loans and financial backing more generally are very often absolutely essential to the prospects of a fledgling company or any enterprise aiming to grow or move on to a new phase of development.

The market for business loans however has changed dramatically in recent years as banks, which once dominated the scene almost entirely, have shrunk away from the lending arena to leave alternative funding options emerging apace to meet rising demand and the needs of SMEs.

Here are some tips on how businesses can prepare themselves to navigate the new dynamics within the business loans market:

1. Consider all the options

Contemporary businesses looking for loans should not only be looking in the direction of the familiar banking groups who might once have been seen as the only possible route to finance. It’s crucial in fact for small business operators to have an open mind and to consider the full range of funding options and loan facilities that are now available.

While the retreat of mainstream banks from the realms of SME lending has made life rather more difficult for small companies in general terms, the good news is that emerging alternative lenders often offer more specialist services.

2. Don’t be fooled by headline figures

The reality of the business loan market at present is that lenders know there is strong demand for any credit facilities they are in a position to offer. That isn’t to say that there are no options available to businesses looking for suitable terms, but only to warn against expecting too much in terms of borrowing money at low interest rates.

Headline interest rate figures on business loans are designed to stand out as eye-catching offers but they don’t necessarily tell the whole of the story.

It could be that what seems to be a great deal does not stack up or suit your company’s needs. So it’s important not to be lured into agreeing a funding arrangement purely on the strength of a fetching headline figure.

3. Leverage your existing assets

Without taking any undue risks, it can be worthwhile and ultimately very beneficial for a company to leverage certain existing assets in order to free up funds for future investment.

One key asset class that often goes overlooked in this context is invoices, which can be sold for a price before they have been settled by your customers.

Invoice factoring and discounting are both growing in prevalence and they provide small companies with important routes to finance when cash flow problems are in danger of becoming critical concerns.

4. Be honest with potential lenders

There is little to be gained from hiding the truth about the financial history of your organisation as you approach the process of applying for a loan of any kind.

Company credit reports ensure that key information about your business is available to relevant parties upon request and lying about or covering any issues should not be considered as an option. It is far better to be upfront and honest with potential lenders and to figure out what options are available to your company as it stands, not as you’d prefer it to be.

5. Get the right advice at key moments

There are times when a company and its leaders are obliged to go it alone and rely on their own ingenuity and situation management skills but the process of applying for a business loan needn’t be one of them.

In fact, it can make a big difference to your chances of getting the kind of loan deal you want if you are able to access advice from relevant specialists at the right moments.

The ever-changing nature of the business loans market at present makes it perhaps more important than ever for companies to bring in third-party experts to help steer and inform the loan application and analysis process.

All you’ll really need is a thorough explanation of all the options available but without expert knowledge it can be very difficult to properly balance and assess the pros and cons in each case.

Further reading on business finance

 

Comments (424)