Anybody can arm themselves with the knowledge of the different ways of securing funding, but to actually go out and obtain finance you need to be savvy.

In a 2018 study by the British Business Bank, one in three SMEs said that they wanted to grow their operation, but were unsure how to make it happen.

So, to help those owners and directors who are not entirely sure how to obtain financing for a small business – which would potentially enable them to expand their organisation – we’ve outlined five tips on how to best navigate the business financing market.

1. 1. Consider all the options

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It’s crucial that you’re investing your time wisely, as you’ve only got a finite amount of it. If you’re to spend lots of your time pursuing a particular route to finance for a small business, you want some assurance (nothing is ever guaranteed, of course) that it’s not going to prove a huge waste of your time and energy.

So, before you start your application for a business loan – which was once thought of as the only possible route to finance for a small business – take some time to consider all of your options, including alternative lenders who offer more specialist services.

Be led by the finance option which best matches your company objectives and personal risk mindset.

1. 2. Get your figures straight

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Whatever route you go down to obtain financing for a small business, bear in mind that you’re going to be quizzed on your company’s figures; past, present and future.

Present accurate, up-to-date financials including a balance sheet, income statement, accounts receivable and accounts payable reports to lenders and ensure that you know them inside out.

You only need to watch an episode of the BBC’s Dragons’ Den to see how much investors hate it when a business owner can’t tell them in straightforward terms how the company has performed.

Also, if you’re going to provide a 12-month cash flow projection, make sure that it’s not overly ambitious as this can make you come across as a little naïve at best, dishonest at worst.

1. 3. Be honest and upfront

Following on from the previous point, there’s very little point in window dressing your financials in order to create a favourable impression on a lender. 

Ultimately, any attempts to mislead lenders will be undone by company credit reports which ensure that key information about your business is available to relevant parties upon request.

If you’ve experienced an issue over the course of operating as a business, it’s much better to be upfront and honest with potential lenders, and provide some context and reasoning as to why it happened – plus how you managed to find a solution to overcome it.

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2. 4. Have a strong company credit score

With lenders being so heavily led by a company’s credit score, you want to make sure that you go into any borrowing discussions with your strongest possible hand.

If your credit score is low, that might mean spending a couple of months working to improve it. Unfortunately, there’s no secret formula that will improve your credit rating overnight. A healthy credit score is made up of three key elements: robust information, sound financial management and regular monitoring.

So, prior to applying for finance, make ensure you’re paying invoices on time wherever possible and keeping customers, suppliers and other company stakeholders up to date on any important changes in how the business is operating.

1. 5. Be prepared to offer some form of security

Most lenders require some form of security on the money that they’re lending – if the borrower can no longer repay the loan, then the lender wants to maximise the likelihood of getting their money back.

Lenders cover their risk by getting directors to sign Personal Guarantees, often against the value of their houses. This might sound risky, but there are ways to moderate that risk – for example, with Personal Guarantee Insurance.

Personal Guarantee Insurance moderates your risk by incrementally mitigating against potential financial loss. In more frank terms, it can be the difference between keeping or having to give up your home in the event of a claim being made under the guarantee.

Purbeck offers Personal Guarantee Insurance for SME Directors who have business loans or financial agreements. We cover up to 80% of your risk, giving you peace of mind as you plan the future growth of your business. Please contact one of our specialists today to learn more on 0208 004 7252.