How to Increase Your Chances of Receiving a Business Loan
Whether you are in the initial stages of launching a new business or your company is trying to obtain capital to grow to the next level, loans can go a long way in unlocking small business growth. Since 2008, however, obtaining a small business loan in the UK isn’t as easy as it sounds. So we’ve put together a couple of tips and tricks that you can use to increase your chances of receiving a business loan.
Identify the best capital sources
Before you dive into the long and complex details of small business lending, start your research by identifying the best lenders for your business situation. Before the recession, it used to be substantially easier for a small business to receive loans from banks. Today, though, commercial banks have become far more difficult sources of capital for small business owners due to an influx in regulations that resulted from the global recession. Accordingly, the UK has seen a decline in small business bank loans, yet an increase in the amount of opportunities provided by alternative lenders.
With the alternative lending market rapidly expanding today, it’s especially difficult to identify the ideal lenders for your business’s context without filling out mounds of paperwork. It’s not just a numbers game, though. Yes, there are hundreds of lenders throughout the UK. No, it’s not as simple as selecting one that you like and applying for a loan on their website.
The main source of complexity is finding a lender who is both actively seeking to expand their portfolio, as well as a lender that focuses on your very specific niche. To clarify the niche element, we’re not just talking about their industry—lenders emphasize target audiences, past sales figures, growth rates, and much more.
This process is only going to get more complex as banks provide fewer loans, as shown in the table below. In fact, the world’s loan market has deteriorated since 2015, which has caused an increase in alternative lenders, as well as our recommendation that you get started as soon as possible in the loan process—before it gets worse.
So what can you do to bypass all the confusing paperwork and processes—and find a fitting alternative lender?
We recommend you try out our smart self-learning algorithm, which lets you fill out just one quick application in less than five minutes and be connected with the best fitting lenders for your business.
Focus on your credit score
While the lending industry has changed a lot over the last 30 years, your credit history remains just as, if not more, important in determining a small business’s loan credentials. In fact, often times, poor credit scores are the “make it or break it” of small business loans. But what things do you need to focus on in order to improve your credit score?
We suggest that you start off by identifying your current credit score—whether it’s your personal credit score with a service like Equifax or your business credit score with a service like Dun & Bradstreet. With these types of services, you should be able to get both your credit score, as well as a breakdown of the factors that create your credit total. These factors include, but are not limited to, your credit-payment history, debt, length of past credit, past credit applications, and any outstanding payments or bankruptcies.
Many people who apply for loans fail to understand that there are two credit scores: personal and business. In fact, credit score agencies sometimes make mistakes on your business credit score, such as including an unrelated person with poor credit in your company or claiming that you are hiding debt. None of these things may be true, but that doesn’t prevent them from coming up in your score. Therefore, we recommend that you carefully monitor both your personal and business credit score and make sure there aren’t any errors or major issues.
If you are considering applying for a business loan, be sure to check in on your past credit history—if there’s outstanding debt or a specific credit issue you have, we recommend that you fix it before applying for the loan. Even if you have the best business idea in the world, a weak credit score can stand in the way of unlocking your company’s potential growth.
If you take these points into thorough consideration, we can pretty much guarantee that you are more likely to receive the business loans you need. However, it’s important to keep in mind that these are just the first steps. The important thing is that you keep at it, remain patient, and get started as soon as possible. Our team at Finimpact will help you with the process as much as possible, doing our best to ensure that you’re paired with the best lender for your business’s specific situation. If you need any assistance or have any questions, don’t hesitate to contact us—as always, we’re here to help you.