Many businesses will require funding at some point. This could be to fund a business start-up, expansion into a new market or to provide a cash flow injection. However securing that funding, and at a reasonable rate, can be more difficult that many business owners and company directors expect.
The key to securing an affordable business loan on reasonable terms lies with putting together a successful business loan proposal, but we often find that many people simply don’t know where to start. However by simply following our tips below you will be able to put together a professional business loan proposal which should significantly increase your chances of securing that vital funding.
Collate and update your business records
If you are applying for funding for an existing business then your lender will want to see exactly where you currently stand financially. You should provide them with both your most recent, any historic and your projected future, financial documents and business records. These should include:
- Tax returns – these will not only prove your HMRC compliance, but will also show at a glance your business income and expenditure.
- Profit and loss reports and balance sheets – ensure that these are clear, precise and fully up to date. They will let your lender see in more detail where your business currently makes and spends its money.
- Business assets – compile a list of all of the assets that your business currently holds (both tangible and intangible) and their projected value, as these may be used as collateral for your loan.
- Current credit - include details of any existing business loans or credit functions that you have, showing records of the loan type and your repayment history.
If you are applying for start-up funding then you will still need to include most of these details but they will have to be in the form of forecasts and projected figures. Ensure that these are realistic and not overinflated, as lenders will be much more willing to support you if they believe that you know what you are talking about and can be trusted to err on the side of caution.
Include your personal information
Even if you are applying for a purely commercial loan, many lenders will want to assess your personal credit record. This may inform whether you are asked to provide a personal guarantee for the loan and will provide a general picture of your trustworthiness as a debtor.
So before you approach a lender ensure that you check your credit record (you should do this with the 3 main UK credit agencies; Experian, Equifax and Callcredit) for any errors, and be prepared to account for any discrepancies or negative records that may appear. You should also put together a personal budget, showing your living costs and how much you would need to take out of the business to cover these, and list your current personal assets and liabilities.
Create a business plan
Although lenders generally don’t want to wade through incredibly long business plans, a key part to any successful business loan proposal will be an informative business plan, detailing how you see your business developing and how you will use the money from the loan. Essentially they should also include details proving how you are going to pay the loan back, and any contingency plans for servicing the loan should your original plan fail.
Most successful business plans tend to include some, or all, of the following sections:
- Executive summary – this should provide a concise overview of your business; what it does, who its market is, and what makes it stand out from the crowd.
- Company description – here you can provide more information about the exact workings of your company; its history, current operations and future projections. Also include full details of your actual service or product line.
- Key financial data – summarise the information that you have already provided about your businesses financial state and include any additional information that may be pertinent to your loan, especially detailing exactly how you will be utilising the loan amount.
- Marketing / production plan – depending on your business type you will need to include details of how you will market your business and fulfil your orders.
- Staffing details and management – it is important to include details of the qualifications and experience of your current staff (even if that’s just you) to prove that you are able to successfully run the business, and also how you are going to manage staffing in the future if your business grows.
Anticipate any questions
Most lenders will want to know; how much you want to borrow, what it is for, how you are going to pay it back and any security that you can offer against the loan. Therefore it is important to answer all of these questions within your business loan proposal.
However it is also important to think like a lender and anticipate any further questions that they may have. If you can have the answers, with any supporting facts, figures and documentation, to hand then you will come across much more positively to lenders and thus have a greater chance of being accepted for a loan.
The most important part of any successful business loan proposal is ensuring that you have all of your financial details fully accurate and up to date. If you are struggling or concerned that you may have missed some key details, then it may be worth engaging the services of an accountant to assist you.
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