1. Be clear about what you need the finance for
To thrive or to survive? That is the question. Consider whether you need finance to fund expansion, for example, taking on a new commercial property, hiring more staff or buying more equipment. Or perhaps you simply need to operate more efficiently, or alleviate some short term pressure?
This may sound like an obvious point, but this will determine the type of finance you should be applying for. All too often businesses apply for finance that does not address their specific needs.
2. Remember, there are more ways than one
The first and, sometimes, only option that many business owners will consider is a commercial loan. It is not the only way to fulfil your finance needs and in some cases it may be the wrong option for your business. There are a number of different sources that businesses should consider.
For example, if you want to improve your ongoing working capital and cash flow position, then invoice financing could work for you. It uses your sales invoices as assets against which money can be borrowed, enabling you to get cash from invoices earlier than you otherwise would. Or you may want to expand your business and invest in more machinery, asset finance may be far a more suitable option.
3. Take on an investor
The number of businesses that have started up in the last four years has increased by around 27%. If you are one of these newer companies with a more specialist focus, a more fruitful option could be to take on an investor.
Venture capital finance has become more popular and is provided to early-stage, high growth potential, high risk companies. In return, the venture capitalist owns a slice of the business and nurtures it to ensure success.
4. Make a good first impression
Think about what your business looks like to potential lenders. The information you provide on your application form is not the only information that will be considered. Lenders will consider your cash flow, your revenue, your credit history and your credit score. Make sure you know your business inside out so that you can answer any financial queries prospective lenders may have.
5. Get into good credit shape
Your credit score plays a key role in the decision making process for many businesses and lenders offering credit in the UK. They use it to help them assess whether your business is a high or low lending risk. Get a copy of your credit report and see what lenders and other businesses are seeing about you when considering your application.
6. Don’t apply for anything and everything
Ask for a quote rather than make a full application when researching your options. Many firms make multiple unnecessary applications and every time this happens, a search footprint is recorded. Large numbers of applications might trigger a warning to lenders as it is one of the signs that an applicant may be committing fraud or be in financial difficulty. As a result, large numbers of searches, when present in conjunction with other risk factors, can trigger fraud investigations or affect your credit scoring and your ability to obtain credit.
7. Look for the right expertise
Consider using a broker to source the right lender and the best deal for you. Look for someone who can offer a wide choice of solutions and understands the needs of your business. A broker will search through masses of companies to find you the most affordable deal that also ticks all your boxes. They don't come cheap, however.
8. Look closer to home
If you're only trying to raise a small amount of start-up capital, friends and family can help. Be honest about the return they can expect on any investment, and make sure that everything is formerly written up to protect both them and you in case anything goes wrong.
9. Get a grant
There are plenty of business schemes out there offering grants to start-ups looking to expand. Do your homework and find the grant that's most relevant to your business. Free money is not easy to come by, so expect a long and arduous application process. And remember that you will be up against hundreds, if not thousands, of other businesses, all vying for the same pot of money - manage your expectations accordingly.
10. Don’t panic!
Many growing businesses that are refused funding initially eventually go on to secure finance successfully. There will be many possible reasons your request for finance has been turned down. Don't fall at the first hurdle, but do ask for feedback to try and determine why your application was unsuccessful.
Max Firth is managing director of Experian’s business information services division.