“What is the best way to apply for business finance?”
This is definitely one of the most common questions we get asked. In simple terms there is no single answer. However, there are several ways to 100% screw-up your chances of obtaining business finance.
These are our top five.
1 – Ask For Everything
Why would I lend you everything you wanted when you were taking no risks yourself? If you need £100k for a project then don’t go asking for the whole lot. There are few lenders that would want to take all the risk. What you are saying here is that you don’t have enough faith to risk your own cash.
2 – Massive Growth
Year one turnover of £100k, year two turnover of £2m, year three £10m etc. You get the picture. It is like a football manager of a Championship club claiming that in three years they will be Champions League regulars. Be realistic, seriously realistic.
3 – Credit History Doesn’t Matter
Do a credit search on yourself and your business before you start. Thinking that a lender will not spot that mortgage in default or that CCJ 5 years ago just doesn’t work. Be realistic about your past credit history and work with it, pretending it never happened will not make it go away.
4 – I Don’t Give Personal Guarantees
We often see advice from ‘professionals’ who advise directors not to give personal guarantees. Great advice, but we live in the real world. Why would a lender give money to your limited company if you are not confident enough to back it yourself. By all means mitigate your own risk, but a lender will want a personal guarantee, at least as a sign of your confidence in your business.
5 – The Bank Don’t Understand My Business
Probably the worst line to bring out when talking to a lender. It’s like being in bar and saying ‘my husband/wife doesn’t understand me’ believe it? No. There is always baggage. What the ‘bank doesn’t understand me’ normally means is that the bank have said no. The question then is why? What happened? More importantly the new lender is now wondering what they are getting in to and what they are not being told.
Business Finance Screw-Ups
There are plenty more but the top 5 above are pretty common. It is well worth looking knowing the common pitfalls so you can avoid them. If you have any comments then please contact us on 01293 541333 or add your comments below.
By Dave Farmer