In this blog, Chris Rogers, Investment Manager at Maven’s Midlands’ offices, breaks down two of the most fundamental things that businesses need to think about when seeking a loan to support their company’s growth plans.
As SME businesses grow, securing funding is often crucial to maximising your business potential. Whether you’re looking to borrow £5,000 or £500,000, there are a number of factors a lender will consider when reviewing your loan application.
A great way of getting your idea across to the potential lender quickly and accurately, is to present them in a business plan. This needn’t be lengthy, but it should cover some key points.
The first of those key points is the amount you wish to borrow. The lender will want to know the amount of funding you need to achieve your growth plans, and how those funds will be used.
Your business plan should clearly explain what the business does and who its customers are. This is your opportunity to highlight any advantages your business might have over the competition. A lender will be drawn to a business or product that has a clearly defined advantage to distinguish it from its rivals.
Bear in mind that it’s unlikely the lender will know as much about your industry as you do, so be sure to include some information around the marketplace you operate in and the competition.
Your plan should clearly set out what you want the business to achieve over the short and medium term and explain to the lender how you are going to meet those objectives.
As a business relies on its management team to meet its objectives, your plan should set out the roles and responsibilities of the key people in the business, detailing their skills and including any relevant experience and qualifications.
Any lender must be satisfied that the business can afford the repayments on a loan. Your business plan should include financial information including historic accounts, current trading figures, and forecasts. Ideally the figures should consist of a profit and loss account, balance sheet and cash-flow forecast.
Make sure the figures are as accurate as you can make them and don’t exaggerate information. What might be obvious to you, might not be so obvious to the lender so be prepared to answer any questions arising from the figures. You should include any assumptions that support the forecasts since this will help the lender understand how you put the figures together.
It’s always worth asking yourself the “what if” question, such as “what if sales aren’t as high as forecast” or “what if my costs go up”. If you can factor these types of sensitivities into your forecasts, it will give the lender some comfort that you can still repay the debt even if you don’t meet the forecasts in full. If needed, get your accountant to help you.
Most lenders will seek some form of security against the loan, as a form of insurance, , to help you repay them should things not go as planned. You therefore need to be prepared for the question and ideally look for a lender whose primary source of repayment are business assets such as Property, Plant and Equipment and Trade Debtors. If there are insufficient business assets to secure the debt, you might be asked to provide personal security such as a personal guarantee.
Essentially, to help you secure a business loan you need to make sure any potential lender understands your business, believes the team can achieve the objectives set out in the plans and recognises that it can service the repayments of the loan in the agreed time. Finally, and arguably most importantly, choose the right lender for your business needs, aligning the needs of the lender with the needs of the business is essential to ensuring the right financial fit to drive your business forward.
Are you looking for funding for your business?
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