Businesses generally apply for loans to help finance operations or plans for expansion. After qualifying for a loan, businesses make monthly payments that include a portion of the original amount borrowed -- the principal -- plus interest to the bank.

Getting approved for a loan is the major hurdle, and this buyer's guide provides tips on ways you can try to improve your chances of securing a loan so you can take your business to the next level.

 

Getting Started

Applying for a business loan usually doesn't come into the picture until at least several years into existence for most small to mid-sized companies. There are exceptions, but usually it takes a few years for a business to establish itself well enough to qualify for a loan.

 

How would you use the money?

While expansion is probably the most common reason for applying for a loan, here are a few other ways businesses use the extra financing:

• renovate or expand business premises
• finance large purchases, such as equipment, that will increase profitable activities
• boost working capital
• build up inventory

Organising your paperwork

Obtaining a commercial loan requires a great deal of legwork and preparation. These are some key documents you should have ready to present to the lending institution:

• personal financial statements for the past three years
• tax returns
• monthly cash flow projections
• thorough and detailed business plan
• plan of how the loan will be used
• management profile
• company's financial statements, including balance sheet and P&L

The organisation and timely preparation of these documents will be a reflection of your business to your prospective lender, so pay close attention to the presentation.

 

Even though a lot is riding on your financial documents and credit history, you can try to improve your chances of securing a loan in other ways. Here are a few tips.

 

• Establish trust. The first thing you'll want to do is try to establish a relationship with the banker sitting across from you. The more they know you as a person, the more they'll trust you. And when it comes to asking for money, nothing is more important than trust.

• Refine the business plan. Make sure your business plan dazzles, but don't sugarcoat potential problems or risk. Be thorough about your plans for the future, address contingencies, and talk about the qualifications of your management team. Focus on the quality of your business plan, for this is one of the primary documents that lenders use to gauge the stability and future of your business.

• Answer the question. The main thing, of course, weighing on the mind of the potential lender is the question of how you are going to pay them back. And to go one step further, how are you going to pay them back if your numbers fall short of your projections. So addressing this issue may help to put their mind at ease.

• Provide collateral. Another way to try to improve your chances of securing a loan would be to provide collateral, which is property that can be seized if you fail to repay a loan.

 

Finding The Right Bank

Unfortunately, some banks just don't make an effort to reach out to small businesses. So before the lender has a chance to evaluate your business, it might be a good idea to turn the tables and evaluate the potential lender.

Are you classified as an "undesirable loan"?

Addressing this issue will require a great deal of tact, but finding out the answer can save a lot of time and energy for both you and the potential lending institution. You'll have to go directly to the small-business agent and ask him or her whether your industry is classified as an "undesirable loan."

 

This list can vary from bank to bank, but if your industry is classified under the undesirable loan category, it could be an uphill battle from the very start.

 

How well do they know your industry?

While this isn't necessarily a determining factor, if the bank has a good understanding of your industry and how your kind of business works, then it is clearer to them how the loan will be repaid.

 

If, however, they don't have any experience with your industry and don't understand how it operates, they may be wary of your ability to pay back the loan.

 

But even if they're not familiar with your business, don't give up just yet. This is the time to answer all their questions and clarify any misconceptions they may have. The better you can explain your business, the more confident they are in your plans for improving your company.

 

One point to note is that when it comes to commercial loans, many of the bigger banks in the UK have a far less rigid approach than with personal loans and mortgages. There can also be considerable differences in between branches.  You may find that by using the services of a commercial loan broker, you can end up talking to another section of the same bank that you may have already approached. Using a broker can be very useful in selecting a bank - they can bring in considerable experience in finding you the right match.

 

The Online Approach

If you're ready to let someone else handle some of the legwork in securing a loan, online alternatives can ease some of that burden by putting the small business in an unfamiliar spot - the driver's seat.

 

Some online services have compiled a network of quality lending institutions, and they take your information and approach suitable lenders. They then present you with the best offers from those institutions that agree to offer a lending package, and you're free to choose the best deal. Your identity is revealed only after you've selected your package.

 

Repayment Penalties

Make sure you understand what the policy is for early repayment. Some banks charge a 2 percent to 5 percent penalty if you decide to repay the loan early.

 

Make a No-obligation Enquiry

QCK.com can introduce you directly to the commercial loans section of well-known banks. Click here to make a no-obligation enquiry about your business loan requirements with a guaranteed response within 1 working day.

 

Or take a look at the following advertisers of business loan services.