3 Top Tips When Applying for a Business Loan
When writing in his 1758 essay, The Way to Wealth, Benjamin Franklin stated that “an investment in knowledge always pays the best interest”, an adage that still rings true over 250 years later. A true Renaissance man and quintessential polymath, Franklin availed himself of information wherever he could get it, despite being from a poor family of seventeen children, and went on to become an inventor, philanthropist, scientist, statesmen, 6th president of Philadelphia and one of the Founding Fathers of the United States, amongst other accolades. Our point is simple: invest in knowledge and you will reap the dividends.
Of course, in this context, we mean financial knowledge, and, even more specifically, knowledge of applying for a business loan, something vital to the vast majority of SMEs and start-ups. Without knowledge, you have no loan. Without a loan, you may have no business.
So, top tips when applying? Our response is three-fold, and goes a little something like this:
1. Get your house in order.
When applying for a business loan, your credit rating, your partner's credit rating, and that of your business itself, may all be taken into account by lenders. If you currently don't know where you stand with your credit score, there are quite a few websites from which you can get access. Probably one of the best is Experian , which gives you a very detailed breakdown of your report and areas of concern, as well as positives, and you can sign up for a free 30-day-trial (although make sure you cancel it before the expiration date, unless you want to start paying an automatic monthly fee!). Something as simple as making sure you are on the electoral roll can boost your rating, and remember, the more credit checks you have made, even if just preliminary, the more it looks like you're credit-hungry, so the more your rating will sink. The main thing is to find out exactly what you need to do to secure a good rating, and then begin to act on it, and fast.
2. Know your limits.
One of Shakespeare's more famous aphorisms comes from Hamlet, and Polonius, with the warning, 'neither a borrower nor a lender be', as 'borrowing dulls the edge of husbandry'; in short, borrowing beyond your means can jeopardise the careful management of your finances. Make sure you have the security and revenue to be able to make regular repayments, and that you actually need a loan in the first place. Start-ups often try running before they are even toddling, and adding a financial burden on top of that isn't always the best course of action, especially in the current economic climate. Perhaps go against Polonius' advice but see if you can borrow from friends and family with a lower interest rate before approaching a bank or other lender.
3. Shop around
Have a look at all the cards on the table before you decide to call. It is worth your while drawing up a pros and cons list of each lender and loan you are considering, with details such as the length of the loan terms, hidden charges, interest rates and whether they are fixed or not, monthly repayments. and whether or not the loan needs to be secured against collateral, which is a serious consideration to take into account if your home or business property are your only assets. Consultations are free with banks and building societies, so make the most of them, and take notes. Don't be afraid to ask for clarification of details – remember what Franklin said: you risk a bad deal when you fail to seek knowledge.
Obviously, getting into the nitty gritty of the application process is slightly more complex on the whole, but if you've ensured you've got the knowledge for what it is precisely that you need, how you can pay it back, and how to paint yourself in the best light as a reliable creditee, you've got your foot in the door and your bird in your hand, or any other truism Franklin would be proud of.