Many successful businesses eventually reach a point where additional finance is needed. Whether the objective is purchasing equipment, expanding premises, recruiting staff or improving cash flow, access to funding can often determine how quickly a business can grow.
Unfortunately, many applications are rejected, not because the business lacks potential, but because lenders are unconvinced by the information they receive.
Before approaching a bank or other lender, it is worth taking time to understand what they are likely to assess. Profitability is important, but it is only part of the picture. Lenders also want reassurance that the business generates sufficient cash to meet future loan repayments. A profitable business can still experience cash flow difficulties, making cash flow forecasts an essential part of any application.
Up-to-date financial information is equally important. Management accounts, current balance sheets and realistic forecasts demonstrate that the owners understand their business and actively monitor performance. Out-of-date figures can quickly undermine confidence.
Lenders also look closely at the purpose of the borrowing. A well-prepared application should explain exactly how the funds will be used and how the investment will improve the business. For example, purchasing equipment that increases productivity or investing in technology that reduces operating costs presents a stronger case than borrowing simply to cover recurring losses.
Existing borrowing will also be reviewed. Businesses should understand their current commitments and be prepared to explain how any new borrowing fits within their overall financial position. Demonstrating sensible financial management can improve credibility considerably.
Credit history matters too. Paying suppliers, lenders and HMRC on time helps build confidence, while resolving any historic issues before applying can improve the chances of success.
Business owners should also remember that banks are no longer the only source of finance. Asset finance, invoice finance, Government-backed lending schemes and regional investment funds may all provide suitable alternatives depending on the circumstances.
Finance providers want confidence that a business is professionally managed and capable of repaying what it borrows. By preparing thoroughly and presenting clear, well-supported financial information, businesses can significantly improve their chances of obtaining the funding they need to support future growth.
