During the last couple of years, monetary demand has been shaping small businesses and start-ups throughout the UK, which is why it is essential for all entrepreneurs to understand the basics of lending, the loans that they can have access to, and how to secure them. In this article, we will focus on the two types of loans that businesses can secure alongside with most of the other principles that have to be kept in mind to make sure that your business doesn’t fail whenever it is in need of some extra cash.
The types of loans that a small business can secure
With this in mind, the first principle of borrowing money refers to its source and use. Understanding the type of loan that you require is an essential aspect of properly securing one. With this in mind, the first type of loan that we will talk about, is known as the traditional line of credit, also referred to as the LOC. They represent a bank financing product that has been designed by banks in order to help businesses survive their natural and well-known cash flow cycles, but also to get them through short-term growth. Often times, LOCs are meant to support manufacturing processes, such as buying new manufacturing material, but also producing the finished product, collecting money on the sale and managing to sell the products in question. These are typically smaller loans that have to be paid somewhat faster, yet the main terms are quite similar to the traditional term loans.
Based on this, the traditional term loans have been designed by banks for new business investments that require the cash to be given upfront. Some relevant examples in this area of use include the purchase of new equipment, geographic expansion, launching a new product, or a new business unit.
Securing an assurance of repayment
At this moment in time, most banks deny small businesses their loans due to the fact that they lack an assurance of repayment, or something to vouch with. Unfortunately for businesses throughout the world, banks are not keen on accepting the business’ net operating income as the only payment guarantee, and are now seeking a secondary source of repayment that they can access in case the funds are not given back on time. With this in mind, there are times when the business owner needs to make personal guarantees, and vouch for the loan in question in different ways. Personal balance sheets alongside with financial statements can help improve the chances of securing a loan, as they provide banks with an assurance of repayment.
Developing the ability to create a personal connection with the banker
Bank employees who are in-charge of offering loans often have flexibility in terms of some features of their jobs. With this in mind, it is essential to find ways of developing a personal connection with the banker in question, as this can greatly increase your chances of securing a loan. This can be done in numerous ways, yet the most popular ones include sharing your passions, and business dreams with the person in question, while also being open about the information you share. Often, sharing too much data isn’t a good idea either, but keeping a closed mouth and refusing to answer the questions that you’re being asked will definitely mark your business as suspicious and lower your chances of getting an LOC or a traditional loan.
Last but not least, it is important for business owners throughout the UK, but also from other areas of the world to pay their debt back on time. It rarely happens that a business needs one loan only, so having a good credit score and a great reputation for being a good loan client can work wonders towards helping you achieve even bigger loans in the future, and not getting in trouble with your current ones. This represents one of the main reason why it is important for businesses to hire a competent accountant, capable of taking things over with the bank employees, but also capable of managing finances and making sure that profit continues to flow in regardless of the circumstances that the business in question has to deal with.
Based on everything that has been outlined so far, by following the principles and tips outlined above, as a business owner, you’ll surely face less trouble when it comes down to getting a loan, while also increasing your chances of getting access to higher loans in the future.