New rules can mean it’s a little harder to get a business loan from the bank than it used to be, so you may want a little help.
Here are some pointers to help you raise finance to buy your dream business and get the bank loan you need.
Prepare a business plan
You need to write a clear business plan, showing how your business is working, why you want extra funding, how you plan to use it and the returns you expect it to bring.
You need to demonstrate when you will be profitable and how you will become profitable based on a credible forecast of your future costs and sales.
You need to find out all there is to know about the market you are entering or the product or service you are going to provide. Know who your competitors are. Know their turnover, profit, strengths, weaknesses and history. And demonstrate how you can beat them.
You don’t have to invent a revolutionary new business idea – you do need to show you know how to make a business work.
Know how you’ll spend the money
You need to be clear why you need a loan. Suggest a definite purpose – like buying a new vehicle, so you can offer a new mobile service. This gives a better impression of your business skills. If you can add costings ‘to buy a £16,000 van to use as a mobile workshop, generating an extra £25,000 turnover each year,’ the impression is better still.
Be realistic about how much you need. Have a well thought out budget that is supported by financial projections, with profit and loss statement and a cash flow statement. A business-like approach to figures suggests a better run business – and that makes your business more attractive to the bank.
Buy a successful business
If you're buying an existing business, the bank can see the figures and the money the business is making. This makes it much easier for them to lend you the money.
Buying an existing business may be more expensive than starting one, but your chances of success will be greater. Banks know and like this.
Buy a business with assets
If you're buying a business which owns assets such as property – like a hotel business, or a stockholder with a warehouse, the loan can be secured against the value of the property. This means that even if your business fails, a bank can get its money back from the property.
This decreases the risk to the bank – they have an asset that they can sell if things go wrong. This can increase the chance of the bank saying ‘yes’ to your application.
Buy a franchise
Buying a franchise, even if it is a new one you are going to open is like buying an existing business. business. You are essentially buying into a concept that has already been proven, with predictable profits and the backing of a major franchisor company.
McDonald’s, Lloyds Pharmacies or a Spar grocery all have established profit models, and are unlikely to fail. Therefore, you are also unlikely to fail if you buy them - which makes lending you the money more attractive. Some banks will lend you up to 60% to acquire your franchise.
Put your own money up
The bank will want to know that you are serious about your business plans, and are committed to ensuring they succeed.
No bank will give you 100% of the money you need as a loan. This means that you will need to start saving for at least 10% - the very minimum. If you can put together 30% or 40% of the money you need to start or buy a business then a bank is more likely to approve your loan for the rest because you are taking on more of the risk.
This guarantees your commitment to the success of the business, so the more of your own money you put in, the better the bank will like it.
Get some professional help
Even with all the points above, it can still be difficult getting the funding you want from many high street banks. Fortunately, challenger banks and a new generation of alternative lenders have grown up to provide business loans, even when the tradition bank can’t.
We have partnered with Rangewell, the UK’s leading Access to Business Finance Provider. Their experts can talk to you about your finding needs, identify your strengths and challenges, help you find the lender with the most competitive rates and support your application.
The Rangewell service is free, and there is no obligation - so whatever your business plans, why not try it out now.