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Three ways to improve your chances of getting an SME loan

Lenders have a set perceptive on what a healthy business is, and they only ever lend to those that are healthy. Businesses that can’t show a capability to repay are rejected, and businesses that do not submit an accurate application are too. If you are thinking about applying for an SME loan for your business, there are three main ways to improve your chances of being approved.

  1. Submit an accurate application

It sounds so, so obvious, yet you’d be surprised by how many applications lenders receive that do not contain accurate information (around two in five). The information you supply in your application will be used to determine its legitimacy. You’ll include the names, dates of birth and home addresses for all business owners and your company registration number. If these details are inaccurate, the loan application will be refused, and you will have to start over again.

It makes sense to take your time with your application. Write down all answers to information requests and double-check their accuracy. By ensuring you submit an accurate application, you allow a lender to decide whether or not to approve your application based on your business’s health and what you plan to do with the money.

  1. Maintain and show business profitability

Lenders want to see capability of repayment with SME loans. The best way to show this is by maintaining profitability in your business. Profitability is important because it shows your business model works. It also gives the lender a rough estimate of the cash in your business. These details are very helpful and particularly so with lenders who review applications in person. Lenders who use automated systems will reject a business out of hand if it’s loss-making.

Can’t show business profitability? Another sign of a healthy business is activity. If your business has an active balance sheet and can accommodate the cost of loan repayments, a lender may approve the application if they are satisfied with capability of repayment. Also, if you can’t show profitability, you can offer the lender security in the form of an asset to get a loan. This is called a secured loan.

  1. Approach independent lenders – not banks

High-street banks do not typically offer the most competitive business loans. And, in many instances, they don’t have specialised products for SMEs.

A quick comparison between a leading high-street bank (HSBC) and a leading independent lender (Nationwide Corporate Finance) for an SME loan reveals a difference in representative APR of 3.8% in favour of the independent lender. That’s an enormous difference that equates to hundreds of pounds over a single year.

Another important point is high-street banks put applications through a computerised system. If they pass that test, they get a human review. Independent lenders do not usually have computerised systems and review applications in person right off the bat. This makes for a fairer, more personal application process and a higher chance of approval.

Source: SME Web

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Why small businesses need to unlock funding for growth

According to Bloomberg, 80% of businesses fail within the first five years and of the 20% still standing, 80% of those statistically will fail in a further five years. We often see start-ups winning rounds of funding, but growth seems to slow down once they reach the development capital stage, as business owners struggle to raise capital to fund business growth in today’s tough market.

Access to funds for small businesses and start-ups is a true catalyst for growth and success. Supporting growth of SMEs is essential for the economy of the country in the pursuit of innovation and progress. Particularly in the run-up to and post Brexit, according to government figures, SMEs combined turnover constitutes almost half (47%) of private sector turnover in the UK, reaching an annual total of £1.8 trillion – making funding crucial.

Many entrepreneurs and small businesses are completely unaware of the sources of cash as well as other less conventional funding methods available to them. For small businesses to be successful, it is important that they apply for right type of funding at the right time, as speed of funding has been identified as integral to achieving this growth. Despite this, many small business owners are yet to take advantage of the funding available to them.

Unlike larger companies that have a whole department dedicated to finance, most small businesses won’t have such resource, meaning owners will need to add fundraising to their list of skills. This often leaves many small business owners unsure of which funding they are eligible for or where they should even apply for the funds they want.

There are a huge number of options available to small businesses in the UK, from Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS), very advanced crowdfunding and angel networks, low rates of corporate tax, R&D tax credits and entrepreneur’s relief in the UK. While having so many options is great, this adds yet another layer of confusion in terms of understanding which is best for your individual business needs and objectives.

This is why I have briefly outlined the advantages of different types of free cash sources and equity available to UK small business to help understand the best option to help fund growth:

  • The UK is one of the best places in the world for equity funding. Tax incentives such as SEIS and EIS are the government’s tax incentives to UK income tax payers to try to level the playing field between the relatively high risks of investing in the shares of unlisted small companies.
  • Often forgotten are R&D tax credits. The government are keen on paying out on R&D tax credits if there is substantial proof of research, development and innovation.
  • Crowdfunding, which also offers an excellent route to raising the capital. As the crowd will help sense-check ideas before you spend money, the marketing of shares will raise your company’s profile and it helps achieve a higher valuation with a crowd of shareholders than with a single financial investor.
  • Angel networks, which are a more sophisticated version of the crowdfunding platforms – angels start at about £25k upwards.
  • There is a comprehensive list of what funds are currently available, many new ones open and many closed. My latest book, “Reboot Your Business” details the 140 different funds available for UK-based SMEs.

Many small businesses struggle to find the funding they need to grow. It is important that they are equipped with the knowledge and tools to succeed. As the level of competition in the market increases and as Brexit looms, funding options have never been as important as they are now.

Source: SME Web

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65% of UK SMEs expect strong growth as Brexit fears subside

Almost two-thirds of SME owners are forecasting a bright future with 65% anticipating growth of up to 40% over the next two years, according to specialist commercial finance provider Wesleyan Bank’s annual survey of UK small and medium sized businesses.

The ‘SME Heroes or Zeros 2018’ report reveals that 54% are feeling ‘more confident’ about their firm’s prospects one year on and just 11% are ‘concerned’ about the potential impact of Brexit. Despite an uncertain UK economy, the findings highlight a significant shift in defiance from business owners. 50% are adamant that Britain’s exit from the European Union will not dictate their firm’s strategy compared to 28% in 2017.

 Paul Slapa, Head of Direct Sales at Wesleyan Bank, says, “The UK’s economic outlook is often clouded by negativity, but this research highlights that SMEs are performing strongly and have built solid foundations to prosper, both pre and post Brexit. Unless there is a material impact on their business today, there is no reason why SMEs should put on hold their investment plans to sustain and maximise growth.

“By leveraging external financial support from specialist lenders, SMEs can benefit from flexible funding solutions to spread the cost of purchasing new equipment and technologies to gain a faster return on investment.”

Businesses are increasingly exploring alternative finance options rather than relying on traditional borrowing methods such as overdrafts, savings and credit cards to facilitate growth. Almost double (59%) the number of UK SMEs have used external funding on at least one occasion against only 30% in the same survey in 2016 with 27% stating that they now ‘regularly’ turn to external finance, up from 20% two years ago.

Attitudes to finance differ according to age and gender. Business owners aged 45 and above are three times more likely to have ‘never’ sought external funding in contrast to only a fifth of those aged between 18 and 29. In addition, female business owners (28%) are less likely to have utilised external finance than men (40%).

Paul Slapa comments, “With greater access to funding and lower interest rates, more SMEs are considering alternative finance as a growth accelerator and have a wider understanding of how it can benefit their business. Business owners should talk to their day-to-day bank but also compare which providers can support their firm at every stage of its lifecycle, with a range of tailored finance solutions.”

Source: London Loves Business