A lack of enough funds is one of the challenges that small businesses in the UK face. To make matters worse, getting a loan as a small business isn’t always easy probably due to cash flow issues and the lack of enough assets that can serve as collateral. However, the good news is that if you do your homework well, you can get the funding you want to grow your business or keep it running. This article highlights some of the key tips that can be helpful when applying for a small business loan.
Explore Different Funding Options
As a small business owner, you can get a loan from the government, banks and other lenders. There are also different types of funding including start-up loans, long-terms loans, short-term loans, credit cards, and business overdrafts among many others. Explore the different options and list the ones that may be a good fit for your business.
Don’t Borrow More or Less than You Need
When it comes to submitting your application, don’t borrow more or less than you need. For instance, don’t apply for a two-year long-term loan when all you need is a few hundred pounds to boost your cash flow. If your need is not big, go for short-term loans that you can repay within a few months and move forward debt-free. However, only apply for short term loans if you know you can pay the loan back in the time required.
In addition, if you borrow less than you need, you may have to take out another loan to fill the gap, and this will end up being more expensive for your business.
Come up with a plan on how you are going to use the money before submitting your application so that you know exactly how much you need to borrow.
In the event your business doesn’t work out as you had planned, you might end up in a lot of debt, being unable to make the repayments. To avoid one such event, however, you could borrow some money from your family members or friends (if they are willing to lend, of course!) And investing in a business indeed tends to be one of the good reasons to borrow money from friends.
Preparing well will increase your chances of getting approval for the loan. Lenders will dismiss your application for simple things such as lack of a detailed business plan. Thus, ensure the documentation you present is correct and comprehensive. Have a checklist when submitting your application so that you don’t miss any detail. If you don’t have a solid business plan, work with an expert and get one. Also, think about any asset that you can offer as security if that is required by the lender.
Think About Repayment in Advance
As you calculate how much you need, don’t forget to look forward and see if you will be able to pay the money back on the lender’s terms. Repayments will be split within a few months or years. Check if your business will be generating enough cash to make these payments. It’s also good to think ahead since most lenders will ask about your repayment plan when you are making the application.
As you make your application, note that not all lenders you come across are genuine. Some are con men waiting to steal from unsuspecting business owners and they can easily blind you with deals that look too good to be true. Thus, evaluate the lenders well before approaching them for a loan.