Since the financial shock and credit crunch of 2008, UK banks have come in for a great deal of criticism – not just for their bad practices leading up to the crash, but also for their reluctance to lend to small and medium enterprises (SMEs) ever since.
You might think, then, that you will have your work cut out to secure a loan for your business. But there’s no need to be pessimistic or despondent.
Although it’s true that the banks are more averse to lending than they were, there is a concerted effort being made by the relevant authorities to ensure financial institutions fulfil their lending obligations to small businesses, such as through the Funding for Lending scheme. Another factor to the relatively low lending figures is the risk-averse attitude of many SMEs; although the UK is beginning to emerge from the financial crisis, many small businesses are still prioritising consolidation over growth and are reluctant to borrow, or have access to funds but aren’t drawing upon them.
So if you are starting a small or medium-sized enterprise and are looking for a bank loan to help with your business, don’t be deterred by the negative press. However, it helps to be prepared, so here’s some advice for securing the funding you need.
### Shop around
You might be happy with the bank your company uses for business, but that doesn’t mean it is your only option for a loan. There are plenty of lenders out there so it makes sense to research all your options. You need to find the most cost-effective solution for your business so cast your net wide. Remember that while individual lenders might advise you of what’s best for your business, they are selling their own products and don’t have access to all the options on the market – but you do, as long as you shop around.
### Sell yourself
If you’re looking for a business loan for your startup, you need to show any potential lender that your plan is founded on sound reasoning and reliable figures. Put together a comprehensive business plan, using the help of an accountant if necessary. Demonstrate that your business idea can be converted into a successful enterprise and sell your vision of the future. Remember that a bank will be looking for a low-risk proposition with evidence of a steady income to pay back any loan with interest. So don’t overstretch yourself with your plans or make promises you can’t keep. Show your ambition, by all means, but get the basics right.
### Be honest and upfront
Do you have any worries regarding your credit history or previous business activity? Honesty is the best policy when it comes to adverse information. Make sure you have all the details to hand and explain everything to a potential lender, doing your best to convince them that you represent a low risk regardless of what’s happened in the past. It will help if you can show them some evidence of why this time will be different – most likely through your business plan. Being upfront will be your best chance of success because the lender is likely to find out about your history even if you don’t tell them.