How to prepare for a business finance application

23 April 2018

There comes a time when every small business needs to think about how it’s going to grow. Receiving financial backing, such as a business loan or working capital finance, can obviously play a big part in this.

If you’re a small business owner looking for a way to take your business to the next level, then applying for finance can certainly help you realise your ambitions. Of course, if you are considering the options available to you and looking for financing, you need to ensure that you’re in a strong enough position to present your business as viable.

Using an online accounting solution to prepare reports (such as your business’s profit & loss, balance sheet and cash flow) and working with an accountant can certainly help you get your affairs in order and put yourself forward as someone worth backing. Below we’ve listed a number of things you need to consider when preparing for a business finance application.

Understand what lenders are looking for

While there are various different types of financing opportunities that you can look into, many lenders will have a clear idea of what they are looking for, having already seen hundreds of applications from other business owners.

As well as presenting your business as an attractive proposition that is likely to continue growing, you also need to present yourself in a professional way and have all the information ready that lenders will be looking for.

They won’t want to back someone who seems unprepared and unable to meet their criteria at this early stage. For example, have you thought about your business strategy and goals? If you’re asked about what your plans are for the future of your company, or how you’d invest the money you’ve applied for if you’re given the green light, do you know how you’re going to answer?

It’s always worth thinking about where you want to be in one, two or even five years’ time, so that you can show you’ve thought about your long-term growth. Of course, plans may change over time, but at least it’s a sign of ambition and of knowing where you want to be.

How stable is your business?

As well as showing that you have a business strategy for the future, you also need to pay attention to how well you’ve performed so far. How well has your business done up until now?

Lofty ambitions may look appealing to some potential lenders, but only if they’re built on strong foundations. That’s why you need to make sure you have a detailed understanding of what your business has done well, how it has grown during the time it’s been operating, what challenges you’ve faced and how you overcame them.

While lenders will accept a certain amount of risk, ultimately they’re looking for a return on their money. Therefore, the more stable and professional your business looks, the better. Additionally, bear in mind that this includes more than just showing that your business is well managed. You also need to show that you’re operating legitimately and have completed all of the relevant legal paperwork that businesses are required to have on file.

Understand the market

Knowing how you’ve performed in the past and having clear goals for what you want to achieve going forward is half of the puzzle. The other half is being able to show how realistic and achievable your goals actually are, which means having an understanding of the market. You could have the best product or service in the world, but if there’s no market for it then you’re going to find it hard to find customers.

Market dynamics also have an influence on the way lenders think. If the market is buoyant and things are going well, they will probably feel more positive about potential lending opportunities – improving your chances of getting the response you want. However, the opposite is also true and if things have taken a bit of a downward turn, it might mean that it’s not the best time to seek funding.

Lenders will always be trying to protect themselves against risk, regardless of whether market conditions are good or not. They’ll be thinking about the long term, and asking questions to that effect.

Have you got contingency plans for your business in case your main strategy doesn’t work out? You might not be able to predict the future, but at least you can show that you’re thinking about ‘the bigger picture’. If lenders don’t have faith in your ability to manage your business well, then there’s greater risk to them – and that means they probably won’t lend.

Turn your business into an attractive prospect

Until you’ve actively tried to secure finance and understand how the process works, you may not be able to cover off every possible question you might get asked. However, try to think of as many you can and prepare your answers for them, supported by evidence wherever possible.

Even if you’re just starting out on the road to funding, there’s a lot you can do to make yourself look professional and competent. Such as the following:

Hone your business strategy. Make it clear what you want to do and how you plan to do it.
Get advice. Work with a business adviser or seek guidance from mentors who can guide you.
Get your finances in order and provide detailed reports about your business’s performance. Working with an accountant and using an online accounting solution like Clear Books can help you prepare these reports and have your key numbers ready to go.
Make sure you’re operating lawfully and have all relevant legal documents in hand, such as incorporation papers, contracts, patents, trademarks and so on.
Address market risks. Show that you’re aware of what challenges your business could face, what you would do in challenging situations, how you would manage your spending and finances to cope with difficult times, and how you would spend the money.

Ultimately, they want to be sure that you can give them a return on their money.

Invest time in your planning

Remember, time is money. As in, the more time you put into preparing yourself and your business for finance, the more likely it is that you’ll get the money you want.

Recording your financial information and business transactions in an online accounting platform like Clear Books, and working with an accountant, will really help you present yourself to lenders in the right way. Putting the hours into your business now could help you reap the rewards in the future as it grows.

Clear Books is a small business that supports small businesses. With our suite of online accounting solutions, we have a solution for any business of any size. What’s more, as our software is cloud-based, you have the freedom to access it online anywhere at any time. And as if that isn’t enough, we also provide all of our clients with free email and phone support from our UK-based team. Follow us here @ClearBooks