There are numerous ways for a business to raise finance, but none of them are particularly easy. In general anyone who lends or invests money in a business wants to be as certain as they can be that they will get their money back, and in most cases make a profit too.
The banks are no exception to this. In recent years it has been notoriously hard to raise business finance from a bank, however this is changing with more money becoming available to lend out to small businesses.
In many cases small business owners and entrepreneurs try to raise money through other sources of finance first such as friends and family, credit cards, personal loans, loans secured against their property or their car such as logbook loans or government grants.
If these kinds of loans aren’t viable then the next step is often to turn to a bank.
As a business owner looking for finance from a lender, your aim is to make your business as attractive as possible for the bank to want to lend to you and this can be achieved through various means.
The first step is to create a very detailed business plan which sets out where your business is now and what it’s aims are. You will also need to be clear about how you plan to overcome any potential problems to your business succeeding.
The bank will want to understand what you will do in a number of potential scenarios that could affect your cash flow negatively. You need to have a clear backup plan if circumstances change in a way that could adversely affect your business.
There are many online resources that help you write a business plan, but to summarise, a plan should generally consist of an executive summary, a description of what the business is about, research into the market and how the business is going to make sales, who you and your team are, details of your operations, and thorough financial forecasts.
Prepare your pitch
Your pitch to the bank is going to sell you and your business to them. You need to know your business plan inside out and be able to field a number of direct questions from the bank about your proposal.
Prepare thoroughly for this and try to rehearse the answers to any potential questions you think they will ask. The bank will expect you to be able to go into detail on every aspect of your business plan, demonstrating you have the all-round knowledge to make your business a viable investment.
The bank will also be very interested in the team you have running the business. Be ready to demonstrate why they are the best people for the job and if you feel it benefits your pitch bring the most relevant people with you to the meeting.
Show how enthusiastic and excited you are about your business plan. Remember that you are talking to people, it isn’t always just down to the numbers. If the people you meet at the bank believe in you, there is more chance of you securing the loan.
Have all recent and relevant documents to hand to provide evidence of everything you are talking about. It will help to be able to back up everything you say with evidence. For example if you have just secured a lucrative contract, bring the contract with you.
Ask for enough money
There is no point securing a business loan from a bank but not asking for enough money to actually achieve what you need to do. There is no point in going through the loan application process and then not getting enough money. The bank will see through this too, if they believe that you are not asking for the right amount it will concern them because it will be likely you won’t be able to achieve the aims set out in your business plan.
There is likely to be more chance of you receiving a larger loan if you have a clear plan to pay it back, rather than a smaller one you may not be able to pay back.
Your personal credit risk
If you are a new business you will have no credit history and this will make you riskier for the bank to lend money to. To give them some kind of credit worthiness banks will carry out a personal credit check on you or other directors to find out if you have any serious blemishes on your credit record in the past.
Before you apply to the bank, do everything you can to clean up your credit history. This can be anything from settling outstanding loans, no matter how small they are, to registering on the electoral roll at your current residence.
If you have past debts, put together a plan of how you will pay them off and over what timescales.
About the Author: Patrick Martin writes for Varooma, a logbook loans company in the UK.