I'm struggling to get a bank loan...
Small firms are often viewed by the banks as high-risk borrowers and find it tough to get loans at the best of times. During economic uncertainty - such as that caused by interest-rate rises over the last year - banks tighten their lending criteria and it can seem next to impossible to get funds. But there are steps you can take to reassure lenders that you are worth the risk. Before approaching any banks, however, ask yourself whether a loan is what you really need. A loan should provide fixed-term financing to cover business development or purchase fixed assets, such as plant and machinery. If you need to cover day-to-costs, you are likely to be better off with an overdraft. It is also worth considering alternative sources of funds. Invoice financing can get you out of a hole, although it can be costly. Friends and family may be able to lend you money; a business angel or partner could give you with sum you need - although this may be harder to obtain than a bank loan and means giving up a portion of your business. Persuasive tactics If you do need a loan, look for a good deal. Your own bank may be willing to negotiate terms based on your track record; otherwise, consider going elsewhere. Finance broker Simply Business compares business loans from different lenders on its website. Don't consider the interest rate only, but take into account the whole cost of the loan, as well as its due date, terms of repayment and the lender's security requirements. Assemble all the proof a prospective lender will need that you are a low-risk investment. An up-to-date business plan illustrating how the loan will develop your business is essential, as is a breakdown of your trading and financial history. The bank will also want to see your balance sheet and financial forecasts showing where repayments will come from. They will want to look at a list of your assets and, as a small business, may even want to know about your personal finances. Having this information to hand will reinforce the impression that you are a serious proposition, in spite of any wider economic concerns. Putting the documents together will also help you understand whether you have a realistic chance of securing a loan - and whether you even really need it. Security concerns You are likely to have to provide some of the capital yourself. If you can offer security, in the form of business or personal assets - including your home - the bank may be willing to lend you more, or offer a lower interest rate. Security is likely to be critical to the bank's decision during a period of restricted lending and they will typically lend up to 70 per cent of the value of a property. Don't offer your house, however, unless you are certain you can make the repayments; however great your business need, it is unlikely to be worth losing your home for.
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