What do you need to apply for a business loan?

What do you need to apply for a business loan?It’s rough out there for businesses looking for working capital, but you can increase your chances if you have all your affairs sorted before you apply.

The current economic landscape can easily look rather bleak at first blush, especially as new reports roll in month after month about the scarcity of business loans. However, banks and building societies in the UK have plenty of spare cash; it’s not the lending that’s scarce but the firm that a given bank feels comfortable with in granting them large sums of money, as the financial service sector is deathly afraid of taking on bad risk, but you can maximise your firm’s chances of being seen as a safe bet by following a few guidelines.

Get your ducks in a row

Before you ever even set foot in your local branch with your lending paperwork, ensure that you are prepared for everything your bank is going to need. This means researching how to write a business plan, learning how to make forecasts concerning your projected cash flow, and whether or not you’re eligible for the Enterprise Finance Guarantee.

Once you’ve sorted all those particulars, you can move on to the nitty-gritty: the exact amount of finance you are requesting and in what way you will put it towards growing your business. Unless you can present to your lender what the benefit will be to your business by this cash infusion, and provide evidence as to why the cash will grow your firm (such as any market research carried out by your or on your behalf), you’re going to see a lot of doors slammed in your face.

Don’t hamstring yourself

No one wants to end up running through your initial business loan, only to have to turn back to your lender and beg for more. Underestimating the amount of working capital isn’t just expensive, as you’ll have to negotiate a brand new loan with a different interest rate, but it’s also a black mark against you – your bank may lose confidence in your firm and your ability to manage the finances of your company – so don’t make the mistake of not asking for a large enough business loan when you initially walk through that door.

This means being brutally honest with yourself and your cash flow projections, and not just for your bank’s benefit – under-valuing the costs you will be incurring or over-forecasting revenues will muddle your figures to the point where they’re completely inaccurate. And lastly, don’t forget to take into account any reasonable living costs that may need to be taken out of the business – a vital thing to remember for small business owners or self-employed sole proprietors who rely on the incomes of their business to keep a roof over their family’s head.

Lastly, don’t simply jump at the first bank to offer you a loan. It’s in your best interest to apply to several lenders, and only the most irresponsible of business owners wouldn’t at least seek a second loan offer to compare the initial one to – just make sure you ask your lender to calculate the total cost of its loan offer inclusive of all charges and relevant interest rates so you can compare each offer at a glance.

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