Times are tough. 2020 has been a difficult year, to say the least. Businesses and industries across the board have suffered significant harm thanks to the ongoing Covid-19 pandemic. While there are a few unicorns like Amazon and Netflix who have found the current crisis to be surprisingly lucrative, the majority of businesses have seen their fortunes decline over the last ten months or so.
It is not exactly surprising that the number of businesses pursuing business loans in the UK has been on the rise. Even before Covid hit, British businesses had Brexit to worry about. The impending double-whammy to the economy has got lots of businesses trying to shore up their finances.
Business loans are one of the most common funding methods for businesses in a slump. If you are considering applying for a business loan, there are some things you should keep in mind. Here are five tips from businesses that have been there before.
Consider All Your Options
Loans are just one of the many ways that a business can get a much-needed injection of funds. There are certain situations in which a loan is the best option by far. However, before you commit to any loan, you should take the time to assess the other options. For example, some businesses might be able to pull themselves out of their financial hole with the assistance of their suppliers. If you can convince a long-time supplier to give you more generous terms, even temporarily, it could make all the difference to your available finances.
The range of options available to you for securing additional business funding will depend on the specifics of your business, and what has necessitated your pursuit of additional financing. Remember, in some cases, reducing your expenses can have the same impact as raising your income. If you can keep more of the money that you are generating, you don’t need to seek as large an infusion of cash.
As well as banks and other financial institutions, you might be able to secure additional funding through public bodies and government initiatives. In some cases, these grants are a better option than a loan, as they generally come with much more generous repayment terms, if they need repaying at all.
Conduct A Full Audit Of Your Business Finances
Once you are confident that a business loan is the right funding option for you, you then need to conduct a thorough audit of your current finances. Before applying for any loan, you must know precisely how much money you have available and how much revenue you expect to generate in the near future. This information is not just crucial for allowing you to plan your spending properly; it will also help potential lenders decide whether to take a risk on you or not.
Hopefully, your business will already be keeping thorough and accurate records of your income and expenses. However, it is always worth double and triple-checking everything before you start approaching lenders and applying for business loans. Not only will this reveal any areas where your existing procedures are failing you, but it will also ensure that you move forward with an accurate picture of your business’s financial health. If you make a loan application based on inaccurate figures and faulty assumptions, the results could be disastrous.
Business Vs Personal Loan
While you might assume that it would be easy to decide whether you need a personal loan or a business loan, the divide can be a lot murkier than you might think. Before you commit to taking out a business loan, you want to be certain that it is the best course of action for you. In fact, there are numerous scenarios in which a personal loan would not only be more suitable; it might be a much safer move for your business.
When you take out a business loan, if you are unable to repay it, your business assets could be on the line. The same is true of personal loans. The best option for you will often come down to what kind of collateral you have available and what you are willing to put up against the loan.
For small business owners and sole traders, the distinction between personal and business finances isn’t always as clear-cut as they might like. However, this can be an advantage when applying for loans. For example, a small business owner with zero credit history looking for up to £5,000 to invest in their business in the short-term might be better off approaching a broker like New Horizons – https://newhorizons.co.uk/. New Horizons is an excellent credit broker for borrowers with a low credit score. 90% of applicants are accepted and receive an instant decision. If successful, the money can be in your account in just 15 minutes.
If you need a reasonably large sum of money, you will probably have to apply for a business loan. Business loans tend to be for larger amounts than personal loans, but this isn’t the only factor to consider. Speak to your lender if you are unsure which loan option to pursue.
Look Beyond The Headline Figures
Loan providers are ultimately like any other business; they will present their services to you in the way they think is most likely to get your attention. That means using eye-catching figures and statistics to draw potential borrowers in. As a businessperson considering taking out a business loan, it is imperative that you are looking beyond these headline figures and diving into the small print.
The fine details of a loan agreement are more important than the raw figures presented to you. There are any number of sneaky clauses and other potential traps that unscrupulous lenders can set for you using the legalese in the fine print.
You should never sign any legal documents on behalf of your business without first consulting with your legal department. Even a small business should be running their most crucial paperwork past a competent lawyer before signing their names to anything.
Make A Shortlist Of Potential Lenders
Once you know what kind of loan you are going to pursue and the terms that you are willing to sign up for, you can begin compiling your shortlist of lenders. It is rarely a good idea to jump on the first lender you come across. Some people assume that loan terms are more or less the same across different providers. in reality, the differences between lenders can be substantial.
Even if you have two lenders offering the same loan terms on paper, your experience as a borrower might be very different with each provider. Remember, loan providers are businesses. Two businesses selling the same product or service can deliver it in vastly different ways. One company might offer its customers extensive support, while the other leaves them to fend for themselves. Loan providers are the same. It is always worth looking into the background and reputation of a loan provider before you apply.
As long as you are realistic in your ask and you have a solid plan for how to invest your business loan, there’s no reason you shouldn’t pursue it as a funding option. Just make sure that you have considered all your options and are confident that a loan is the best choice for you.