KPMG Enterprise takes a look at the current shape of the lending market and explains the best route to attaining that all-important funding.
Getting a loan for a business venture – whether new or existing – has become a complex process for UK entrepreneurs in recent times. Despite the recovery delivering a more positive economic outlook, lenders and banks remain cautious with regard to lending. So how do you secure that crucial finance? What sets apart the risky from the too risky?
Expect an assessment
The current situation is very ‘liquid’, meaning the banks have substantial capital to lend, having recovered from the credit crunch. However, with the volatile nature of the international markets, applicant businesses are coming under increasingly rigorous risk assessment and scrutiny. Banks are taking a meticulous approach to lending in the hope of avoiding the wrong decision. However, the finance is undoubtedly out there – with the right documentation and approach, your business can secure it.
Explore every option
Finding the right loan for your business can be a long, drawn-out process, so be prepared to invest time and energy into researching prospective lenders. A recent study from BMG research shows 37% of businesses give up their search for finance and cancel their spending plans after their first rejection . The lending market is diversifying. With crowd funding and asset-based lending, amongst others, there are now more avenues for finance than ever before.
Knuckle down on the numbers
Any lender will be looking for robust financial records and forecasts. It doesn’t matter if you’re an incredible entrepreneur with a million pound idea; if the numbers don’t add up and you can’t produce clear evidence of your financial performance, the bank may be inclined to reject your application. KPMG Enterprise’s small business online accounting package provides key reports and management information such as long-term cashflow and P&L figures, at the click of a button.
Don’t confuse banks with investors
Many businesses confuse banks with investors – they’re not the same thing. While an investor can get comfortable with the potential risks of a business idea, a bank is ultimately concerned with getting repaid. If you can prove your ability to repay the loan, with evidence well explained business plan and forecasts, you’re likely to have a much smoother application process.
It’s your job to make them understand
A common misconception in small businesses is that banks will instantly understand your situation. Lending doesn’t involve a consultation stage; you need to know your stuff. A lot of companies make the fundamental error of mistaking profit/sales for cashflow. If you don’t completely understand your business, you’ll struggle to explain it to someone else.