“There are hundreds of ways of getting the money, but you’ve got to match those with the purpose.”
There are different types of business loans to suit different stages of a business lifecycle and different business needs, and selecting the right one can speed up the application process and minimize costs.
Before diving in and applying, it’s important to understand your requirements first, so that a loan can be matched to your needs, and so that you can potentially avoid the problem in the future.
The consequences of choosing the wrong finance product include paying too much for finance, or ending up with a loan that simply isn’t fit for the purpose – in this case, it may make a problem worse, rather than solving it.
Finance for a start-up
For a startup company with no trading business or cash flow, it can be quite difficult to secure a business loan. An alternative is to take out an investment loan against the equity of your home or property. It provides flexibility and you’re more likely to secure approval.
Finance for expansion or investment
Aimed at funding long-term investments, term loans are ideal for business expansion. They’re fully drawn advances for a fixed length of time with scheduled repayments. Normally secured against a valuable asset, term loans are commonly used for purchasing new equipment or moving to larger premises.
There is also the option of lease finance for those who require equipment upgrades but don’t particularly want to own it.
Due to the risks involved, strict guidelines are imposed on business finance, so securing approval can be difficult. Here are a few things to remember to increase your chances of approval.
Know your credit score. Not only is it taken as a reflection of your ability to make repayments, but it also highlights your financial history which is why understanding what it is and how it can be improved can be vital.
Have a Good Business Plan. The key things to be aware of when it comes to your application are a healthy debt to income ratio, existing business assets, and a justified cash flow position. Be prepared to discuss the purpose of the finance and how the business will service the loan.
Find out what your real issue is. Work out how long it will take to repay the amount you need to borrow, whether the repayments will impact the business, what has caused the shortfall, and whether you need to take any other action.
Regardless of what kind of business you are financing, it’s always important to have a good business plan.
Have a Good Strategy. Longevity in a business is what lenders want to see and, in order to showcase that, a good strategy supported by financial statements must be in place, and those statements should be geared towards demonstrating strong earnings.
Get the Right Advice. Surrounding yourself with industry experts can provide you with a solid understanding of what needs to be included in your application, and good equipment and commercial finance broker can match you with the right loan product.
Make sure you talk to someone experienced. Rather than asking friends what they think, it is suggested to speak to an accountant, financial planner, or broker first.
Dream Catchers Lending is an MFAA-accredited member. We can assist with business planning and finding the right type of finance to support growth and success. Feel free to book an obligation-free virtual appointment or leave us your details.
Photo by Matthew Henry on Unsplash