Businesses looking to get themselves off the ground or improve cash flow may wish to apply to their bank for a business loan. Indeed, the pickup of the UK economy is making forward-thinking lenders increasingly keen to support promising enterprises.
Before you take the plunge, however, it’s worth remembering that preparation is crucial not only to securing the loan, but also making the best use of the funds for your business. We’ve picked out some questions that entrepreneurs should ask themselves before they approach their bank:
1. Is your business ready?
There is little value in taking on a loan without a plan for how to use it. In your business plan, make it clear to the lender how much you need, how you intend to spend it, and what you expect your enterprise to gain from it.
Naturally, the more you would like to borrow, the more evidence the bank will want to see that you can justify borrowing the sum, so you really can’t be too thorough here.
2. Are you leaving enough time?
Bear in mind that it’s not uncommon for business loans to take a little time to come to fruition. A frequent mistake made by firms is to only apply for a loan at a time when they are struggling financially. We suggest, therefore, to consider loans as a long-term strategy rather than as a quick fix to low coffers – banks would see that as poor financial planning, and may be less likely to lend if you leave it this late.
3. How much leeway do you need?
It’s advisable to overestimate the amount you need to borrow. While interest rates may make it tempting to request the bare minimum, arrangement fees are likely to tot up if you request a further loan shortly after, and again, this might leave your lender in doubt about your financial planning.
4. Is a business loan your only option?
Some business owners choose to sidestep the corporate loan route by instead applying for a personal loan and then ploughing the money into their business. Applying this way is usually a quicker and simpler process, but is not one that should be taken lightly.
Decisions like this are best consulted with providers of accounting services with your interests at heart, so don’t hesitate to get in touch for professional advice.