2012-09-18 00:00:00Small BusinessEnglishhttps://quickbooks.intuit.com/uk/resources/uk_qrc/uploads/2017/01/Banks.jpgThe 5 Cs of securing a small business loan

The 5 Cs of securing a small business loan

4 min read

It may not be as easy as it once was for small businesses to secure a loan but it isn’t impossible. More than ever, though, you’ll have to do your homework.

These tips aim to help you find the best deal and persuade lenders to loan you the money you need.

Find the funding

Finding a likely source for a business loan will require some initial research – first of all, get online to find a selection of banks that may loan the amount you are looking for, to your type and size of business.  The internet isn’t the only source of information, though. You could call on friends, family or business contacts who have been through the process already for help.

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You could also start by contacting any banks who you already have a relationship with – if they have dealt with your business or personal accounts, they may be more inclined to approve a loan agreement for your small business.

Once you’ve compiled a list of potential lenders, then it’s time to get talking, and this is your chance to show you understand what the banks are looking for, and that they can find these things in your business.

Roughly speaking, the bank will look for five key things, often termed the 5 Cs of business bank loans – thinking these areas through in detail will help you prepare for loan applications and meetings. These 5 Cs are:

  • Character: Lenders will notice if you make a good first impression, so it’s vital you show you are serious about your proposal and have a good attitude towards your business. They will also look for positive credit reports, and it can be helpful to have references from people you’ve done business with before. Lenders will also take a look at your background, education and track record in business, so it may feel like you’re handing over a CV!
  • Conditions: It may have already been part of your business plan but if not, it’s important that you analyse the current position of your chosen industry, and can talk to the lender about any potential risks that may affect your business as well as how you will tackle them.
  • Cash flow: One of the key parts of the process is instilling confidence in the bank that you will be able to pay back your small business loan instalments on time. Evidence of good cash flow will go a long way to helping with this, so be prepared to show the lender up-to-date records and projected figures, and, if requested, personal financial details. This is so that you can show you will be able to pay pack the loan, after other business costs are paid.
  • Capital: A bank will also look at the current financial situation of your business, focusing on any money you are planning to invest, any money that is already tied up in the business and the amount of cash you are asking to borrow. Commitment to the business could be illustrated by the amount of money that you are willing and able to invest yourself.
  • Collateral: This is something of a security blanket and is only normally used as a last resort, as most lenders try to work with their customers towards getting the loan money repaid. If you do have assets, though, and can provide these as a security alternative to repaying the money you want to borrow, you may find it easier to secure the small business loan you’re looking for. Property, stock and equipment are all common examples of assets used as collateral, and personal assets are an option too, but you should be aware of the risks attached if your house is on the shortlist.

Your loan proposal

After appointments with potential lenders are set up, it will then be time to drill into the details and put together a small business loan proposal. You should put together a package that showcases what you and your company are all about.

Include the key information relating to the loan you hope to get, so that the bank knows how much you want to borrow, how the business loan will be spent, and your plans for repaying any loan you secure.

Honest information about your loan proposal should also be accompanied by key details about your business, where it’s located, who is involved in it and how, its structure, and information about major customers and suppliers.

Of course, you’ll need to include financial information as well. Your proposal should include projections for your new business, or balance sheets and income statements for the last three years if you’ve been going for a while.

Did you know? Intuit accounting software can help you pull these financial statements together.

Do you have any additional ideas on how small businesses can give themselves the best chance of securing the business loan they need?

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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