During initial discussions with prospective clients, I am often asked what is the interest rate?
Since the last recession and rise of the alternative business finance sector there is no such thing as a fixed interest rate.
Each business loan application is judged on its merits and the rate decided at the time of approval.
Here are my top 5 tips to help you prepare a business loan Information that any commercial lender will want to know, irrespective of the type of commercial finance.
Being prepared will not only improve the speed of a commercial lenders decision and speed of getting access to funds but also significantly improve the interest rate offered.
Obviously, this will save you valuable time, the scarcest commodity in your Business, and money in future saved interest payments.
At Ashwood Partnerships, I use a unique process which includes preparing you and your Business for business funding Applications, collating all the information, dealing with commercial lender queries, negotiating terms and assisting with implementation of the business finance solution.
If you don’t feel you have the time or expertise to plan, prepare and execute a funding strategy to ensure your Businesses development plans are properly and correctly funded then contact me today.
Tip # 1: Settle any outstanding County Court Judgements “CCJ’s”
Most commercial lenders don’t like to see CCJ’s as they suggest poor business management.
Valid reasons such as divorce, management break-up, and vexatious claims can be discussed with commercial lenders but the far simpler route, irrespective of reason, is to settle any outstanding judgements, get the proof of settlement and assign the experience to a lesson learnt.
You want a business loan and you won’t get anything close to a good deal, if an offer at all, with outstanding CCJ’s.
Tip #2: Improve your personal credit score
Whilst it is the Business applying for commercial finance it will be the people who run it, you, who in times of financial stress will decide who gets paid and when.
A history of habitual missed mortgage, rent and utility bill payments deemed to be essentials by most commercial lenders demonstrate poor personal financial management and planning that, in the Commercial lenders mind, may transfer to the way you manage your Company.
If you have a poor or very poor credit rating at Noodle take steps to settle any defaults and make a conscious effort to avoid them in future.
Tip #3: Keep a positive cash balance in your Business bank account
Commercial lenders want to be certain you can afford the repayments.
A continual overdrawn balance or continually at the limit of your approved overdraft will not inspire confidence in your ability to repay regularly and on time.
If general cashflow is the main reason for your business loan application then ideally before, or worst case after, securing a commercial finance facility try to improve your cash position by investigating:
- Your credit control and debtor management policy (read more: The 3 most important things in Business)
- How to increase lead generation and conversion of those to more sales orders
- Operating cost reductions
Tip #4: Demonstrate a profitable business
Turnover is vanity, profit is sanity.
A profitable business can encounter cashflow issues for a whole host of reasons including large contract, supply chain opportunity and late debt payment. A track record of profitability demonstrates to commercial lenders that the business loan is geared to fund growth not as a stop gap to failure.
That stated in the UK our accounting practices are focused on reducing corporation tax which in turn means demonstrating the smallest profit or even a technical loss.
Commercial lenders understand this but be prepared to discuss, or have your advisor able to justify, why past small profits or technical losses will be substantially improved in the future.
Tip #5: Prepare summaries of key Business and finance information
A consequence of the last recession and Banking crisis is a vast increase in alternative commercial lenders all with their own bespoke application process.
However, whatever the process and requested support information they all want to answer one question: “will we get our money back and make a profit?”
Remember they’re a business too, run by people with too much to do and not enough time to do it!
So, you can help them to help you by making their underwriting job easy and deal swiftly with any of their due diligence questions by preparing the following prior to a business funding application:
- Last full set of Business accounts showing P&L and Balance sheet
- Current and forward confirmed order summary
- Aged Debtors
- Aged Creditors
- Asset register
- Existing loan summary
- Company brochure or solutions catalogue
- Past 3 months Business banking statements
- Management accounts since the end of your last financial year, (or at least a monthly cashflow forecast)
I hope you found this article useful and wishing you all the best with your Business funding Application.