02/07/2012

By Joe Carstairs, Funding Options

While much has already been said and written about access to finance, small business owners can be forgiven for finding the topic entirely confusing.

At times it can seem like there’s a new government scheme to boost lending, a new alternative finance provider, a new statistic that proves the banks aren’t lending and another that proves they are, created every week.

Certain truths about small to medium sized enterprise (SME) finance can’t be denied though. Overall bank lending has dropped since the boom years before 2008. However few people would suggest it’s sensible to return to these levels.

At the same time, new finance providers, such as new banks and alternative lenders, are starting to offer businesses other options; even though the majority of SME lending still comes from the five main banks.

Businesses that require finance should therefore take heart from the fact that there are a growing number of finance providers willing to lend them money.

What they shouldn’t assume however is that, just because these new providers claim to offer something different, they’ll be any less rigorous in their assessment of finance applications.

Businesses do have options available in terms of finance products and providers. The key point to remember though is that, whether you’re approaching your own bank, one of its rivals, an alternative lender or all of the above, they all want to know the same thing; that you can pay the money back.

Therefore, businesses applying for finance should keep one thing in mind; ensure your finance application is as comprehensive as possible and you’ll have little problem convincing someone to lend you the money you need.

Five ways to ensure your finance application is a success:

1. Understand your options: Want an unsecured loan? Then be prepared for disappointment. The reality is that only established businesses with exceptional cashflow are likely to get one. However that doesn’t mean you can’t get finance. Invoice finance and asset finance are becoming increasingly popular for more than just working capital needs and equity finance can also be a good option, especially for startups.

2. Outline your request in detail: Always keep in mind that, whether the brochure says it or not, the main way lenders are going to judge your application for finance is on whether it will make or lose them money. Therefore you’ve got to make a convincing argument about why and how you’ll pay the money back. Outlining what you need the money for will also help lenders to identify which finance product is right for you.

3. Back it up with financial information: Quite simply, if you haven’t included the financial information lenders need to assess your business, you’ll either have to spend time collecting and sending it or your application will be rejected straight away. Having your finances in good shape and presenting them in a clear format is absolutely vital if you’re going to secure funding. Always include a Profit & Loss and Balance sheet as well as a list of your debtors and creditors and a cashflow summary if possible.

4. Include realistic forecasts and plans: Your business plan and forecasts have to demonstrate how you intend to pay the money borrowed back. That means being detailed and realistic with the forecasts you provide. These must tally with the financial information you’ve provided or lenders will simply think they are unrealistic. Also include information about your business, like key people, existing finance and assets.

5. Try a range of finance providers: As already mentioned, the SME lending landscape is changing with new entrants coming into the market all the time. That includes alternative finance providers, new banks and lesser-known specialist finance providers. Researching your options then putting your funding request to a range of providers can only help you find the right business finance solution.

This article was written by Joe Carstairs on behalf of Funding Options, the online service that helps you find the right business finance solution from a range of finance products and providers.

For more information, visit www.fundingoptions.com or call 0845 366 4199.

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