Raising finance for your business isn’t always straightforward. The days where you could walk into a bank and walk out with a suitcase of cash are long gone. As are the days of having your own dedicated bank manager, who you could call directly. Now you’ve got to navigate the maze of call centres, online chats and tricky forms. It’s hard to be sure what each lender is looking for in your application – but that’s where we can help.
In our years’ of experience, there are four main factors that lenders will look to, when they are deciding your loan. If you’re thinking of buying a business, these are worth keeping in mind:
1) Cash
No lender will take on 100% of the risk. They will all expect you to contribute towards the purchase, usually in the form of a deposit. The amount depends on the type of the finance required (short-term or long-term, fixed-rate or variable, etc), and the security – also known as ‘collateral’.
2) Security
Security gives the lender a way to recoup their investment if you default on your loan.
Is your business operating from a freehold or leasehold property? Is there any high-value machinery or equipment involved in the business, like a coffee machine or a van? Can you offer any additional property as security against a loan? Questions like this can determine what finance will be available to you, depending on how valuable the security is. Keep in mind that they will want independent evaluation of the security’s value, and the security is a property or land, a solicitor will need to be involved.
3) Income
Obviously, this is an important one! The annual turnover and the profitability of your business is key, it means less risk and greater confidence that you will keep up with the repayments. More profitable businesses will be more attractive to lenders, and this will affect what finance is available.
4) Experience
This last point is not always considered by potential borrowers. The risk involved in the business is only half of the equation; the lender will also consider you personally. They place a lot of emphasis on your reliability and experience in the relevant industry. Expect them to check your financial position and credit history.
Keep these four criteria in mind, and you’ll find the process of securing finance for your business a little more straightforward. Need more help? Here are some sources of lending that you will be interested in:
- ASC can give you independent financial advice and bespoke support along your journey to buying a business – click here.
- Natwest Bank offers small business loans to help kick start your business – click here.
- Funding Circle has helped over 120 thousands businesses secure a loan up to £500,000 – click here.
- HSBC offer flexible business loans for sole traders to limited companies – click here.
