28/02/2012

By Adam Tyler, Chief Executive, NACFB

SMEs can find the idea of getting finance for their business a daunting prospect, all businesses, at one time or another, will want access to some kind of finance. With the easing of credit no closer now than 12 months ago, businesses would be well advised to prepare well in advance before making any requests for borrowing. Hopefully, the tips below will help businesses make those preparations – and secure them that essential money.

First things first, a lender will lend money according to the risk of any proposition, in other words, how likely they are to get their money back. Most lenders will ask to see accounts (usually the last three years) but there will be different requirements for start-ups and businesses that haven’t been trading that long.

If your business needs finance, you would be wise to seek professional advice. As with most things, shopping around can usually secure you a better deal. A good finance broker will be able to help you get the right kind of finance for your business. Brokers who are members of the National Association of Commercial Finance Brokers (NACFB) all adhere to an industry recognised Code of Practice, so if you use a broker with the NACFB logo, you know you’ll be getting good advice.

As a business owner, you need to prove to your lender that you are on top of your finances. A business owner who is, is likely to be a better risk than one who isn’t. Preparation means that you can ask for an overdraft before you actually need it – a far better sign that you are in control than asking for it two weeks after you’ve actually gone onto the red.

A business can survive for years without making a profit. It can’t survive more than a few weeks if it runs out of cash. It’s a cliché, but cash is the lifeblood of a business whether you are a corner shop or Tesco. Cash isn’t just money in the bank, although money held in current and deposit accounts is part of it...

If the business still owes money to its creditors and all of these sources have run dry then it has problems and at worst could go bust. There may be times when you need to sacrifice profit for cash – some special offers for example for example may mean you break even, or even make a loss, but they can release cash which will allow you to pay your bills and keep trading. The best way to avoid cash flow problems is to spot them coming, and the best way to spot them coming is to plan your finances.

Before looking for extra funding, do you own SWOT analysis. SWOT stands for: Strengths; Weaknesses; Opportunities; Threats. Take a long hard look at your business using this model as a starting point. Strengths and weaknesses examine the business itself; its internal processes procedures structure and people. It might help to ask yourself questions about your business such as: What are its unique selling points? What are its weaknesses (and what can you do about them)? Opportunities and Threats relate to external factors which you probably have little control over, but still need to be aware of, and plan for.

The finance you think you need may not be the finance you actually need. This is another area where a NACFB broker can help. Although you may think that you need a loan to buy your equipment or an overdraft facility to help with your cash flow, a good broker will explore all the finance options with you and find you the best deal for your business. For example, instead of a choosing business loan to buy your equipment, a broker might recommend a leasing arrangement as more suitable. Perhaps instead of a traditional overdraft, the flexibility of a factoring arrangement will give your business the cash injection it needs.

Careful preparation shows that you have considered all the options and are aware of the risks to your business; which makes your business less of a risk to any lender.

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