Growth phases, seasonal downturns, unforeseen expenses – these are just some of the day-to-day challenges faced by small and medium-sized enterprises (SMEs) in the UK. Just keeping on top of managing these kinds of everyday financial obligations can be a full-time job, and can cause plenty of stress and strain, which doesn’t leave much time or motivation for driving the business forward. Which is where a working capital loan can be very useful.
A working capital loan is a short-term financial solution designed to help you cover operational costs such as payroll, rent, inventory and expenses. They are ideal for managing cyclical revenue or taking advantage of opportunities when they arise. But, if you’ve decided this kind of loan presents the right solution for your circumstances, how do you ensure a successful application?
Below, we will break down everything you need to know about what lenders are looking for and offer some top tips on how to get a working capital loan approved and the much-needed cash injection into the bank.
Before making an application for a working capital loan, clearly define what it is you need the loan for. Lenders are looking for applicants who can demonstrate a clear purpose and request a realistic loan amount to match that. Asking for too much or too little without a clear plan can be a red flag for many lenders. It might be a good idea to create a cash flow projection to show exactly why you need the money and where it will be spent.
One of the most common causes for delay is incomplete paperwork. Stay one step ahead by getting all the necessary documentation in order. This will include: 6 months of bank statements and a full set of the most recent year-end accounts, which should include the profit and loss. Amount dependent, lenders may also ask for a profit and loss and balance sheet from your accounting software. But it’s worth doing your research to see if your lender requires any additional information.
Both your personal and business credit scores may be required and can significantly affect your chances of approval and the terms of any loan you might be approved for. While some lenders may grant loans to applicants with low credit scores, this usually comes at a cost. The higher your credit score, the better your chances of a speedy approval. Check your reports in advance and do what you can to boost your ratings.
Lenders are looking for businesses that are in healthy shape and capable of making timely repayments. Showing your positive cash flow trends, a solid client base or increased demand can all help to build your case for approval. You need to have your business model and pitch down to a fine art and be ready to explain why lenders should trust your business with their money.
Try and apply at the right time, when the business is stable and not in crisis. Avoid waiting until it is too late and cash reserves have completely dried up. Being proactive and seeking funding when you are in a healthier situation will vastly increase your chances of success.
Securing the best working capital loans for your business does not have to be stressful. By following the above tips, being proactive, making a strong business case and demonstrating your ability to repay, lenders will be more than happy to approve your loan. Get in touch with our team here at Century Business Finance to discover more.
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