Small Business Saturday Blog

Five things all SMEs should know when applying for funding

Monday, February 08 at 15:08Finance | Small Business | Top Tips

1. Business Plan
Never under-estimate the value of producing a comprehensive business plan; it does two things. First, it is a good discipline for the company’s management because it forces them to understand what they need, to think about why they need it and in what form; e.g. should they be looking for an overdraft or a term loan?

Second, and most important of all, it demonstrates to a lender that the management understands its business and takes the lending process seriously.

2. Understand your cashflow
A realistic cashflow forecast is probably the most crucial element in a business’s financial arsenal. Understanding where the cash goes allows a business to identify what the money is needed for. It might be to finance growth through the purchase of machinery or another asset, or to provide day- to-day working capital? Either way, you can guarantee that the lender will need assurance that (a) you understand what the money is needed for, how much and for how long and (b) that your business will generate sufficient surplus to pay the money back when you say you will.

3. Know when to apply to funding

Often new or small businesses wait too long to apply for funding, resulting in the business being put under financial pressure and making a rushed decision that could end in a poor choice of lender or type of finance; e.g. in certain circumstances, a term loan could be a better solution than, say, invoice discounting, or vice versa. Going with a lender that can get the job done quickly is just one aspect; other considerations include the level of flexibility the lender can extend you in terms of repayments and the cost of the finance.

4. Know the funding market

With increasingly niche funding solutions available, businesses may need an adviser they can call on for advice and market knowledge, directing them to the right type of financing for their short, medium and long term needs. 

Historically, this adviser may have been a bank manager or accountant, but a growing business should also consider a commercial finance broker, as the expansion of the Alternative Finance sector has meant more funding options than ever are open to SMEs. A good adviser will understand the market and steer you towards the right lender and the most appropriate type of funding to suit your particular circumstances.

An alternative way to search for an appropriate lender is to use the aggregators’ site. Typically they offer no advice but highlight appropriate lending products for an SME’s requirements.

5. Don’t be afraid to shop around
Being turned down for funding by your own bank does not have to be the end of the story. There is a whole new generation of lenders in the marketplace who may be able to help you. The new lenders can move quickly and thoroughly. Make sure your lender is transparent with costs, personal in approach and takes the time to understand your business. Don’t be afraid to look around the market, possibly with the help of a reputable finance broker.

Written by Credit4. Visit their homepage or call 020 3637 0570 for further information.

Don’t miss the Small Business Saturday Inspire Series, ‘Accessing finance for your small business’ a free workshop on 9th February. Register here or follow @SmallBizSatUK for updates.

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