Whether you’re a seasoned business owner looking to expand or a budding entrepreneur eager to kickstart your venture, securing a business finance loan can be a pivotal step on your business journey. Understanding what you have to do to secure a business finance loan is crucial. If you don’t prepare properly you could end up either with the wrong finance options, or even no finance options at all.
In this article we’ll walk you through the 7 steps that you can take to ensure that you have the best chance of securing the right loan for your business.
How to Secure a Loan For Your Business
1. Ensure that your cash flow position is as strong as possible at the time of application
Before you embark on the loan application process you should focus on your cash flow.
Prioritising your cash flow in the period leading up to your finance application will not only bolster your chances of getting a better deal on your business finance, it will also help to get your business into a healthier financial state. A healthier business can confidently take on a loan and use it to drive action rather than pay off debts.
Lenders want to see proof that your business is stable and profitable. Ensure that, as much as possible, you pay your suppliers on time, manage your invoice collection in a timely manner etc.
If your cash flow isn’t in a particularly healthy state then you need to prove to lenders that your business will be able to pay back the loan over the term of the finance agreement. You should focus on creating a detailed cash flow forecast for the next few years. Show exactly where you are taking the business and how you are going to manage your cash flow over the period.
At Acorn, part of our 1-to-1 service includes looking at your situation and advising on which loan options will be available to you.
2. Understand the types of business finance available to you
Business finance comes in various forms. There is Asset finance, Personal Loans, Secured Loans, Commercial Property Finance, to name just a few.
Each option has its pros and cons, so before you even think about starting your application process for funding, you need to understand exactly which options are available and which businesses they are each suited to.
At Acorn, we are experts in business finance. We explain in detail which options are available, how they each work, and which one(s) would be best suited to your specific business goals.
3. Get your personal finances in order
If you are applying for business finance then you should be aware that lenders will want to look at your own financial situation too, not just the business and it’s forecasts.
This is of course particularly true for start ups and smaller businesses.
Lenders will want to be confident that you will be able to meet both your personal and business debt obligations. If your business doesn’t yet have enough assets available to guarantee the business loan amount, then this is when you may need to personally guarantee the loan yourself.
This can be guaranteed by yourself and/or a number of guarantors (eg your business partners, your family members, etc) that will need to put up assets as collateral.
With that in mind, make sure that you are aware of your credit score. A higher credit score will help show to lenders that you have a track record of making payments and staying on top of your loans.
4. What to do if your credit score is low
If your credit score is particularly low and you know that you are going to have to guarantee part of the loan yourself, then it might be worth spending some time working on improving your credit score before you go ahead with the business finance application.
Honesty is the best policy with business finance applications. By being upfront about any financial issues with your application you will be showing yourself to be open and trustworthy with the lenders.
Don’t hide problems or weaknesses with your finances from lenders. These problems will almost certainly be revealed during the application process and it won’t do you any good by trying to cover them up. Also if you are having to lie about your finances, then consider whether taking on further debt is actually a good idea in the first place.
If you’re an Acorn customer, we will be able to advise you on whether your current situation is likely to result in a loan offer. If it looks like you don’t have enough to prove that you are capable of meeting the loan payments then we can work with you to discuss the best course of action for your business.
5. Work out exactly how much funding you need
Consider both the immediate needs of the business and its future growth plans. Do your research to accurately understand how much money each phase of growth will cost you.
By clearly outlining your requirements with a detailed breakdown of how the funds will be used, you instil confidence in lenders that you have a plan to succeed. This not only helps your funding application, it also helps you too by forcing you to question exactly how much money you do need and what you are going to use it for.
If you don’t do the research and go with a ballpark figure, then you could easily end up borrowing too little or too much. Both of these options are filled with unnecessary complications and problems.
At Acorn, we discuss with you what the funding will be used for and will work with you to decide on an appropriate amount of funding to apply for that is both attainable and suitable to your situation.
6. Create a strong business plan
A robust business plan is the backbone of any successful loan application. Outline your business’s mission, vision, and objectives. Detail your market analysis, competition, and a solid financial projection.
You want lenders to be confident that:
- You know your market
- You have a viable business with growth potential
- You are cable of delivering the against the plan
A well-crafted business plan not only showcases your business acumen but also provides assurance to lenders about the viability and potential return on investment.
7. Work with a good finance broker
The experience and advice of a commercial finance broker can be invaluable when searching and applying for business finance.
A good finance broker will be able to explain the various lending options that are available and advise on the best path forward for your business. A good broker will also have access to multiple lenders, with different options and requirements. They will be able to provide different solutions if the situation changes and will be able to advise you on your application process to increase your chances of success.
At Acorn Business Finance, we are a highly experienced team that works in a friendly, effective and efficient manner.
We are fully FCA accredited and work with a large number of high quality lenders, catering to a wide range of business finance requirements.
We offer a bespoke solution that starts with our 1-to-1 personal service. We take the time to understand the details of your short and long term needs, providing an ongoing finance strategy and securing credit lines where required. At Acorn, we’re always looking to the future success of your business.
Kick start your business finance journey today! Book a free call with our team at a time that suits you.
