There are many finance options out there for SMEs which need loans to get started or to grow. But how do you qualify for a business loan?
This brief guide outlines the main stages your company should take to ensure you get the very best deals to help you achieve your business goals.
Building your business credit score
Lenders will check your business credit score to see if you qualify for a small business loan. Your personal credit score may be taken into account too.
You can use a credit checking service such as experian to view your own report and determine what factors might be affecting your score.
In general, the very best action your business can take to boost your score is to pay your creditors on time. You should also aim to reduce your debts.
The higher your credit score, the more opportunities for loans will be made available to you. Interest rates could be lower too.
If you have a low or non-existent credit score, you may well still be able to get a loan. There are hundreds of lenders with different criteria, so do your research online to find one that suits.
Checking lenders' criteria
If you can show you meet all the criteria for a loan from a particular lender, you’re obviously more likely to qualify. Some lenders will allow businesses a degree of leeway if they fall short on one or two criteria but excel in other areas.
Lenders will want to know all about your business, including but not limited to: your capacity to make monthly repayments; your turnover and balance sheet; your business assets; your accounts and financial statement; and your personal financial details.
Ideally, you want to build up a strong relationship with your lender in case you need to apply for further loans in years to come. It pays to do your research in these early stages.
Getting your paperwork together
To qualify for a small business loan, you’ll need to submit a range of documents to help lenders build up a picture of your SME.
Lenders may ask to see personal documents, such as proof of identity and address and bank statements. They will want to view business supporting documents, such as bank statements, financial statements or audited accounts, and business plans.
Writing a strong business plan
Your business plan is crucial to your application. It should include an overview of your company, details about your products or services, and a team structure. You’ll need to explain your operation plan, your marketing plan, and your sales strategy. You should also include a SWOT analysis.
Details of your current and projected finances are also essential, to show that you will be able to meet loan repayments.
A strong business plan will show lenders how you qualify for a loan.
Determining your commercial asset value
If lenders see your business as high risk, they will request security against your assets. These can include your commercial premises, machinery and inventory.
You will need to provide a detailed estimate, and your lender will later arrange for a proper valuation.
Agreeing a Personal Guarantee
Finally, your own personal assets can also be used as security for a business loan or financial agreement. This is useful if you’re just starting out, but is high risk for you and your family.
A Personal Guarantee entitles the lender to seize your assets, such as your home, if your business fails to make repayments.
If you go down this route, you can reduce the risk by taking out Personal Guarantee Insurance from Purbeck Insurance. This will cover up to 80% of the costs if your business fails to make repayments and the lender calls on the Personal Guarantee.
Speak to one of Purbeck’s specialists today on 0208 004 7252 about growing your SME while reducing your personal risk.