Running a successful small business requires healthy cash flow, sustainable growth, adaptability, and forward planning. However, there may be times when you need an extra injection of cash. That’s where business loans come in. They are a common source of finance for SMEs and with the growth of alternative finance providers like Capify, there are now loans designed to cover the specific needs of almost every organization.
Whether you need to hire more staff, ease cash flow issues, renovate your premises, or invest in new equipment, a business loan could be the solution you’re looking for. But where do you start? In this guide, we will share our top tips and the steps you should take to get the small business loan that is tailored to your specific needs. These steps include creating a business plan, researching available lenders, determining your eligibility, ensuring you have all the necessary documents, and reviewing the proposed loan carefully.
Before we delve into the steps, let’s take a closer look at what a small business loan is and how it works. A small business loan is designed to give SMEs access to finance for their business needs, whether it’s funding a growth project or boosting cash flow. It involves borrowing a sum of money from a lender, which is paid back with interest over a set period of time. Unlike other loans, small business loans are tailored to the unique needs of small businesses. The specifics of the loan, such as size, repayment period, and eligibility, will differ from one lender to another and depend on the type of loan you choose. Therefore, it’s important to carefully consider and plan for the right loan for your company, based on your ambitions and the sector you operate in.
Funding for small businesses is available from various sources, including the UK government, local government or regional authorities, community development finance institutions (CDFIs), banks or credit unions, finance brokers, peer-to-peer lenders, and alternative finance specialists. While the lender and business may differ, there are important steps every business can take to improve their chances of securing a small business loan.
Step 1: Create or update your business plan and decide what loan you need. While some lenders may require a formal business plan and interview, others only require a simple online application. However, creating a business plan is crucial for planning ahead, understanding your competition, and targeting your customers effectively. It also serves as a benchmark for your success. Before searching for a lender, determine the purpose of the loan and how much you need to borrow. This will help you decide if you need a short-term or long-term loan, and whether it should be secured or unsecured.
Step 2: Compare and research small business lenders. With a wide range of loans and providers to choose from, researching lenders is essential to select the right loan for your business. Consider factors such as the terms of the loan, repayment frequency, customer service, and future financing options.
Step 3: Determine your eligibility. Different lenders have different criteria, so it’s important to assess your eligibility and likelihood of approval. Factors such as credit score, trading history, affordability, business turnover, profitability, and assets may be considered. Check your credit score online and consider lenders that offer “soft search” approval to avoid impacting your credit score.
Step 4: Have all your paperwork ready. Before applying for a loan, gather the necessary documentation and ensure completeness and accuracy. Traditional lenders may have stricter requirements, while alternative lenders like Capify offer more flexibility and easy online application processes.
Step 5: Understand the terms of the proposed loan. Once approved, compare and decide on the best loan for your business based on factors like length of the loan, frequency of payments, and total amount repayable. Consider how quickly you can get the cash, repayments frequency, and the total amount repayable. Review the rates and fees associated with the loan.
By following these steps, you can increase your chances of securing a small business loan that is tailored to your needs. Remember to carefully consider your goals as a business owner or manager and choose the loan that best aligns with your objectives.