Let’s face it, no-one likes dealing with rejection. And, when it comes to getting a bank loan, the chances of being knocked back can seem prohibitively high. Having had their fingers scorched by the credit crunch, Britain’s banks remain reluctant to lend to small firms – not even the pressure of Project Merlin has persuaded them to loosen the purse strings.
However, this doesn’t mean the banks’ doors are closed – if you can present a clear, compelling case, backed up by hard facts, you stand a great chance of getting the money you want. This step-by-step guide should help you do so.
Know what you want
You need to know exactly what you want before you start pitching for a bank loan – if you aren’t clear in your own mind what you want, you may end up taking on a loan which is totally unsuitable– and places an unsustainable burden on your company.
First, consider all your costs and work out exactly how much money you need. Don’t be too conservative here – if your initial loan is too small, you may end up having to go back for more loans in future, and that can get expensive.
Then, work out the type of loan you need. You might be after a working capital loan to cover a short-term cashflow problem; a fixed asset loan to purchase facilities or equipment; or a hire purchase loan to secure the long-term purchase of an expensive asset. The more closely the loan matches your circumstances, the better.
Finally, you need to think about terms. How many years will you need to repay the loan? Do you want a fixed rate of interest, or a variable rate which moves up and down with the Bank of England base rate? The terms should fit your business strategy, and ensure you can continue to meet your repayments even if the company hits turbulence.
Shop around
You may have held a personal account with the same bank for years, but that doesn’t mean you have to take out a business account with them.
Make sure you shop around for the bank which offers the most favourable terms – and gives you the best chance of success. A quick search of the internet should give you a rundown of what’s on offer -the British Bankers’ Association offers some excellent advice on the loans currently offered by Britain’s banks, and you should also check out specialist websites such as Loanfinder.
Run a credit check
Before you arrange a meeting with the bankers, take the time to run a credit check. If you can show the bank a strong credit score, those assessing your application are more likely to view you favourably.
Brand-new businesses may find it difficult to get a credit rating; if this applies to you, you should get a personal rating to show that you, as an individual, are good for a bank loan.
Several websites offer a free trial checking service. These include Experian and Credit Check Instantly.