Thinking of applying for small business finance? These five tips will dramatically increase your chances of success.
Applying for small business funding can be a daunting prospect. But being prepared will make the process a lot less unnerving and dramatically increase your likelihood of receiving a business loan or grant. Here are five things you need to know before you even make an appointment with a loan provider.
Your business plan
Before you apply for a business loan or small business grant, you’ll need a business plan. Put simply, your business plan is a formal statement of your business goals, but it shouldn’t start and end there. For a realistic chance of receiving business funding, you’ll also need to provide concrete evidence of how you plan to achieve these goals.
This means getting down to the nitty gritty when it comes to current and future financials – including sales forecasts – and the means through which you hope to achieve them – such as marketing or hiring plans. To help business owners understand why they’re looking for small business funding, many large financial institutions have their own downloadable templates for writing a business plan. You can find links to many of them on the UK Government’s Great Business site.
Your cash flow forecast
Even if your long-term prospects for success look good, a lender will always want to know that you’ll be able to meet your repayments before they offer a business loan. That’s why it’s vital for you to understand your cash flow, or the way money moves in and out of your business. A cash flow forecast shows when you will be paid and when you will need to pay others. It should include receipts, payments, the total of receipts minus payments and an opening and closing bank balance. That way, both you and the lender will have a better understanding of your capacity to make repayments when they are due.
Your finance options
There are many different ways that small businesses can receive funding (we’ve covered 8 of them here). These range from start-up business loans through to crowdfunding and from angel investors through to government grants for small business.
Each option has its strengths and weakness, so it pays to understand how they work before making the choice. You may even find that you don’t really need outside investment at all and are better off bootstrapping (starting a business without external funding). Whatever you choose, don’t wait until you’re in a difficult financial position before reaching out for support.
Your elevator pitch
Every business owner who’s serious about receiving funding or a small business grant should be able to succinctly describe what they do, why they’re different and what their vision is. As the name implies, this ‘elevator pitch’ should be no longer than a couple of minutes and should provide a compelling reason for people to buy from you or, in this case, invest in you. The best elevator pitches are original, intelligent and get people enthusiastic about your business. They’re also extremely well rehearsed.
Your industry and competitor landscape
Your prospects of receiving a business loan will also depend on the outlook for your industry. Any lender will always want to get a feel for the landscape – which other businesses play in your market, where your points of difference are and how high the barriers to entry for new players are.
Even with this information, you should also make sure you have the right documents prepared to support your loan or grant application. This includes up-to-date trading accounts, bank accounts, profit and loss statements and, of course, your cash flow forecast and business plan.
Any lender will also want to be certain that you won’t be withdrawing money unexpectedly from the business account to meet your own living expenses. That’s why it’s likely they’ll also need a personal budget and even a statement of assets, in case they ask for a guarantee.
By being prepared with the information lenders want to know and the documents they need, you’re likely to vastly increase the chance of receiving a small business loan or grant. You’re also better placed to make a call about whether you need a loan at all, or whether you’re better off seeking funding through other means.
For more information on small business finance check out our guide to The five Cs of securing a small business loan