When a lender reviews a business loan application, they’re looking at more than just how much you want to borrow.
They want to understand how your business is performing, what the money will be used for and whether the repayments are affordable.
Every lender has its own criteria, but there are a few things worth understanding before you apply.
How is your business performing?
One of the first things lenders usually consider is the financial health of your business.
This might include your turnover, profitability, existing borrowing and how much cash is coming in and going out.
But strong sales don’t always mean a business has plenty of money available.
For example, you might have a healthy order book and be making a profit, but if customers are taking 60 or 90 days to pay, you could still experience cashflow difficulties.
That’s why lenders often look beyond turnover to understand whether the business can comfortably manage its existing commitments alongside any new repayments.
What do you need the money for?
It might sound like an obvious question, but having a clear reason for borrowing is important.
Perhaps you’re looking to purchase equipment, take on additional staff, move into larger premises or need some extra working capital to support a new contract.
These are all different funding requirements, and the type of finance available may depend on what you’re trying to achieve.
Being able to explain why you need the funding and how it will benefit your business can help a lender better understand your application.
Does your trading history matter?
Yes, although it doesn’t necessarily mean newer businesses can’t access finance.
An established business with several years of accounts may have different options available compared with a company that’s only recently started trading.
Lenders may also consider credit history, including that of the business and, depending on the circumstances, its directors or owners.
And if your credit history isn’t perfect, don’t automatically assume that finance is out of reach. It may affect the options available, but different lenders have different requirements.
What should you have ready?
You don’t need to have everything prepared before making an initial enquiry.
However, depending on the lender and the type of finance, you may be asked for recent accounts, bank statements, details of existing borrowing or cashflow forecasts.
Having a reasonable understanding of your figures and being clear about what you’re looking to achieve is a good starting point.
And if you’re unsure what information you’ll need, that’s perfectly normal. You can always ask questions before deciding how to proceed.
A little preparation can make a difference
Two businesses applying for exactly the same amount of finance could receive very different responses from lenders.
That’s because every application is considered against the lender’s criteria and the circumstances of the business.
Taking some time to understand your financial position, your funding requirements and what lenders may ask can help you approach the process with greater confidence.
Thinking About Applying? Let’s Have a Chat.
If you’re considering a business loan but aren’t quite sure where to start, we’re happy to talk through what you’re looking to achieve and explore what options may be available.
You don’t need to have everything figured out before getting in touch. Sometimes a simple conversation is a good place to begin.
