Home Business Insights & Advice Small business loans: making the impossible possible

Small business loans: making the impossible possible

by Sarah Dunsby
11th Jul 18 1:21 pm

A lot of small business owners feel that borrowing money is pretty much an impossible task. The reality for most startups is that money is usually tight. Unless you already have a significant backing or have exploded out of the traps in terms of making profits, you are going to have to borrow if you want to grow your business. Ultimately, this leads to huge problems for entrepreneurs who are trying to establish themselves in their industries.

However, borrowing money from a bank or other lender is not the impossible task many people think. It’s simply a case of understanding what the creditors are looking for and ensuring you have everything in place before making your application. In this guide, we are going to take a look at how you can make the impossible possible, and get a business loan for your small company or organization. Let’s get started right away.

Understand your own risk

First of all, how much of a risk do you pose the lender? It’s important to assure any creditor that they won’t lose any money, so the more you can prove your financial viability, the better. Do you have any collateral?

Are you running a business in an industry with significant legal and tax liabilities? Do you have a diverse revenue stream, and can you point to solvency and cash flow in your accounts to prove you are profitable? You need to be able to prove everything with watertight accounts and realistic targets.

Do you have the right character?

Lenders also look at the person behind the business before making their judgment. How long have you been in business? What is your personal credit history? How much equity have you invested in your project? Will you guarantee that you accept personal responsibility for the loan if things go wrong? And are you capable of running your business to maximise your profits? Again, you will need to prove – or persuade – any lender that you are a capable person if you want them to sign off a loan.

Do you have the right model?

Be honest – how successful would your business be? Many entrepreneurs have an over-inflated opinion of their ideas, but soon come crashing down when their business plans are taken apart by a lender. Make sure your cash flow forecast is accurate, reasonable and logical, and ensure that your business model is organised to optimise. Also, make sure that you compare loans to ensure you are in with a realistic shot of getting accepted. As pointed out over at MoneyPug, not every loan will be suitable for your business. Furthermore, getting a refusal could damage your credit history, so always do your research beforehand.

General business loan tips

Finally, it’s clear there are some hard questions to answer – so make sure you do your homework before your creditor asks them. An accountant can help, too, simply to formalise and finalise your financial records accurately. But the main thing to take away is to be realistic. Never overestimate your potential income, or you will – quite literally – be laughed out of the bank.

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