Guide to business loans
posted by: Jason Hulott
Business loans are sometimes essential when you are trying to advance and grow your enterprise.
Even huge multinationals sometimes need to “go to the market” to secure funding for one purpose or another.
A single blog of this nature cannot give an in-depth guide to every issue connected with business loans. It can, though, pick out a few essential generalities that are worth noting.
The drivers behind your loan application are important
It is a crude generalisation, but companies tend to seek business loans for one of two generic reasons:
- they are experiencing some form of financial problem or another;
- they are launching something like a new project covering product development or business expansion etc.
There may be very different solutions available for the two sets of circumstances.
In the first, things such as factoring or debt restructuring may be solutions that are more suitable.
In the second category, short to medium term business loans from lenders may be more appropriate.
It is therefore advisable to try and seek finance which is both appropriate for your situation and which originates from lenders who will be likely to be receptive to your proposition.
Broadly speaking, it is typically faster and easier to obtain business loans if your drivers are perceived to be positive as opposed to negative. Lenders may be reluctant to advance funds to companies that are clearly struggling to survive.
Don’t default to bank applications
Even today, there is a widespread belief that somehow all business lending comes from the banks.
In fact, this is simply untrue.
Private enterprise funding sources are available offering bespoke business loans solutions. In other words, such lenders may be able to construct propositions that suit your requirements rather than expecting you to bend to meet a “one size fits all” approach as is sometimes the case with the banks.
Another advantage of pursuing direct sources of business lending rather than approaching the banks is that typically, the former may be able to respond much faster and more efficiently. You may also find these days that they are somewhat more risk-inclined than many of the conventional bank lending organisations.
In some way, shape or form, you will need to be able to show potential lenders that your business is viable and will remain so if the funding request is approved.
This means you may need to ensure that you are entirely up to speed with the financial accounting side of your organisation. You may need to provide some evidence relating to your business’s performance and show that you are fully conversant with the basic financial mechanics of managing a business.
Also, your organisation will not necessarily need to have an exemplary credit record. Naturally, if you have a particularly bad history, then a lender may decline to advance a business loan to you. Typically though, what might be termed normal “credit history glitches” will not prove to be a showstopper.
Some conventional lenders may apply the typical APR type approach in terms of making their profit on the funds advanced.
New entrants may be rather more innovative and offer fixed-fee lending arrangements. Depending upon your exact circumstances, you may find those to be easy to understand and more cost-effective.
After a century or more of relatively little choice when it came to business loans, today the marketplace is much more dynamic and diversified for companies that are seeking business finance.
That can only be a good thing, and it may be worth finding out more about the general subject by reading our full Guide to business loans here.