Business finance: If you don’t plan to succeed, you plan to fail
Obtaining business finance isn’t easy in today’s economic climate. But it’s a whole lot harder if you don’t do the right preparations beforehand to make your business appear a good risk. Here are some of the ways you can maximise your chances of getting the right decisions – and the right business finance in place.
Draft a brilliant business plan.
When you were applying for jobs, you needed a great CV to get ahead. Now you’re applying for business loans, you need a great business plan. Not all lenders consider this a prerequisite, but a good business plan shows you’re on top of your future and your industry. You’ll need to demonstrate that you understand your sector in depth and appreciate what your business can reasonably achieve in the short, medium and longer term. It’s also important that you highlight what sets you apart from the competition and make clear what you’ll do with the business finance you’re seeking – is it to power growth, purchase a major asset or simply deal with a short-time turnover gap? If you’re not entirely certain what you need (or indeed why), try meeting an adviser beforehand, so you can make a clear and confident proposal.
Keep on top of your paperwork.
But the business plan isn’t the only piece of paperwork. Your lender will probably require detailed income and expenditure projections before providing business finance and may also ask for tax returns, bank statements (both personal and business) and certificates of ownership for any assets against which you wish to borrow. Make sure you have everything on hand and in good order – if you appear uncertain at this stage, you can be certain lenders won’t be rushing to provide your business finance.
Check your credit rating.
Another useful piece of preparation is to check your credit score, as this indicates the likelihood of reaching an agreement. A high score (of around 700 or more) will probably lead to a more advantageous interest rate; a very low score will probably preclude any offers at any rate. To see your score, simply request a copy of your credit report and check it carefully for any errors – for example, a bill you paid on time but which is listed as late. If your score is lower than 700, take whatever steps you can to improve it before commencing the hunt for business finance. Also, be aware that the percentage of available credit you are using significantly affects your score, so try to keep below half your credit limit at all times.
There is life beyond banks.
However, this isn’t the only piece of research you should be doing. It’s also important to compare rates and fees before making any commitments. These can fluctuate enormously between lenders and between different business finance options, and particularly between secured and unsecured lending. In general, banks ramp up interest rates for short-term loans of a year or less, whilst offering more realistic rates for longer-term financing.
Finally, don’t bank on using a bank. In many cases, banks will offer the best interest rates, but their application process can be labyrinthine and it can literally take months before the money is in your hands. So if you have cash flow problems, an emergency business loan – which can be with you in under 24 hours – could be the perfect solution, whilst invoice factoring and discounting can smooth out any ripples going forward.
Carl D. Faulds, Managing Director of Cashsolv, a Portland business support & advice service. Carl is a business recovery specialist focusing on how to make business finance work for you. He pursues an ethos of working with distressed businesses to help them overcome their financial problems. As Managing Director of Cashsolv, he offers advice and support as well as identifying possible underlying problems that can be addressed to ensure a positive future for your business. Carl was former president of the Insolvency Practitioners Association, and makes regular appearances on BBC documentaries related to business recovery. You can follow Carl on LinkedIn.