Getting the bank to loan you money has been a challenge lately thanks to hostile market conditions and a general reluctance of financial institutions to take chances on their customers.
Whilst this has made it much harder for a lot of small businesses to adequately grow their businesses, it is still possible to acquire a loan and there are a few things that you can do to help the process along. Back in September, the FSB published a guide to the five ways you can better encourage a bank to take a chance on you and we wanted to repeat this in case you missed it the first time.
A lot of these might seem like common sense, but it’s very solid advice that deserves to be spread so this is our summary.
1. Put together a convincing business plan – Without a business plan, any investor is going to be highly suspicious of your ability to run a stable and profitable business. It will also cover areas of how much you need exactly and when you expect to start making a return on your efforts.
2. Understand your numbers – If you can demonstrate a clear understanding of your key numbers such as turnover, profits and existing debts as well as how you will be dealing with the loan that you’re requesting, then this will put lenders at ease. It is very easy to muddle up these core, essential figures so get this as clear as you can in your head.
3. Know your credit rating – Taking stock of your past financial history can prevent any unpleasant surprises. Occasionally, your credit rating will be incorrect, so if you spot something that doesn’t look right, then challenge this with your bank or credit agency.
4. Honesty about how much you need – Be honest and straight forward about exactly how much money you will need. In particular, factor in reasonable living costs that you might need to take out of the business and don’t try and convince yourself or the bank that you’re going to live below the bread line to boost the numbers.
5. Keep communicating – Talking with your bank often and clearly and seeking feedback on your lending applications is a good way of building confidence. Even if you get turned down, this might not close off this avenue of finance indefinitely.
If you want to read the original document from the FSB and British Bankers’ Association, which also contains further advice around some of these points, you can read it online here.