In the first quarter of 2017, 80% of loan applications from small businesses were approved by banks, and around £5.3bn of new lending was provided to SMEs. For many businesses, this funding is essential and whether or not their loan gets approved could make or break their business. 80% may sound like a high success rate, but if you are applying for a business loan it’s important not to take any chances, and to make sure that you have as many factors as possible working in your favour. So, what do lenders look for, what questions will they ask, and how can you use your business plan to secure a loan?
When you’re applying for a loan, lenders tend to look at these three basic things to help them decide whether to lend to you:
Trading history
Lenders like to see at least one or two years of company history, so they will ask how long you have been trading for. Lenders might not be keen to take a risk on a business that has not been trading for very long, but there are start-up loans available for newer businesses so this might be a good option if you’re just starting out. Use your business plan to explain your company history and track record. If you are a start-up, you can also use your business plan to show that even though you’re just starting out, you have a clear road map for the business and plenty of career or personal experience to help you on your way.
Turnover and profit
Naturally, lenders will want to know that you will be able to pay them back, so they will also ask about your annual turnover, profit margins, and cash flow. The financial section of your business plan is where you can outline any previous data as well as your financial projections.
Credit history
Along the same lines, lenders will want to look at your credit history to make sure you’re not likely to default on your business loan. If you have a history of late repayments, CCJs or other red flags, they may be less likely to lend to you. They might look at both your personal and business credit history to make their decision.
These are not the only things a lender will consider, but if you can win them over by proving you have a good financial standing, that’s a good start. You can also use your business plan to show that you have a good idea, you’ve done your research, and you’re realistic and sensible about your finances. Your business plan should include what your business will do, how it will do it, your costs and retail prices, and your goals and objectives.
If you would like some help with writing a business plan that will help you secure a business loan, contact cbm using the form on the right or call 01604 420 420.