Before you approach a bank, get hold of your credit file to see if there are any obvious steps you can take to improve your standing in the eyes of lenders: next comes the paperwork. The process can seem cumbersome, or even intimidating, so here is a walk-through of what a typical loan application consists of – along with some pointers on how to deal with each step along the way.
1. Personal information: ‘all about you’
Among the routine personal background information asked for, you may find a box dedicated to education, qualifications and experience. Here, the focus should be less on your GCSE grades, and more on evidence to show that you’ve got what it takes to manage business funds effectively.
Look to give the lender a well-rounded image of yourself. For instance, if your academic background is mostly technical, you could highlight managerial or creative abilities, with detail on your past experience. You should also ask yourself if there are any more explicit steps you could take to improve your credentials here. Examples might include formal Google AdWords accreditation if you’re going to be selling online, or even mentioning a short business accounts course.
2. Name and status of your business
Picture this: you put your proposed business name on the form, only for the small business advisor to quickly discover via Google that the name’s already taken. Here, you’ve demonstrated pretty clearly that you haven’t done your homework.
By contrast, taking steps such as registering a company with the same name as your business (even if you’re not trading under that business name yet) shows that you’re serious about protecting the name and reputation of your business.
3. Your existing assets and resources
If asked to detail your assets, don’t forget to include ‘intangible’ (non-physical) assets. For instance, are you developing new technology, or processes that could be patented? Even if this is still a work in progress, it’s worth mentioning.
When lenders ask about your current team, try and highlight how your colleagues’ skills will complement yours. For instance, if you are a more ‘behind-the-scenes’ worker, emphasizing your decision to employ someone who is a natural salesperson will highlight your aptitude in role and group management.
4. Making your unique selling point clear
It is vitally important to outline what differentiates your business from current competition, and the reasons why customers will choose you above any other products or services. Be specific: point to the characteristics that make your product or service stand out, rather than general statements such as ‘we aim to be the best’.
5. Your business goals
Lenders will be keen to ensure that you’ve got an achievable plan in place, so try and make reference to concrete facts and statistics about your business. For example:
“At present, the business is running at full capacity. With an investment in ‘X’ new equipment, I aim to reduce my production costs by ‘X’%”.
This will assure lenders that your product or service is actually viable, rather than being a vague idea in the development or pre-development stage. You want to show ambition, but refrain from being unrealistically optimistic in your business goals.
6. The purpose of the loan
What lenders want to hear is not just a description of the item you want to buy, but how that new item is going to be put to work in your business.
For instance, rather than saying the money is “for a new van”, elaborate a little further, perhaps along the following lines:
“Some of my existing customers were enquiring about home deliveries. After looking into this, I realised that a delivery service would add a valuable revenue stream to my business, as demonstrated in my costings (attached). I require funding for a van to enable me to launch this new arm of my business…”
7. Revenue and profit forecasts
Lenders want to see that you’ll have enough cash coming in to meet repayments consistently. This is your opportunity to demonstrate that you're financially savvy, and that your plans for the business are backed by solid numbers and statistics. When making revenue and profit forecasts you should focus on:
At the front of your mind will be the costs directly relating to how you produce your goods, or deliver your service: i.e. materials, manufacturing, packaging, transportation, and staff wages. You also need to factor in additional costs needed to keep your business running, including rent, bills, marketing, computer software, and the cost of maintaining your business equipment.
Lenders will be looking for evidence that you have factored in all of these costs with clear costing sheets. You must also communicate that your model will be successful in its current field, and competitive with similar business — so be ready to make reference to other companies’ pricing plans, and have factual evidence of their current charges.
Here you should consider how many customers you are expecting to get. If you’re already trading, you can refer to your figures to date as a starting point, and illustrate how you intend to build on this. If the loan is to get you off the ground, you’ll be more reliant on data from your industry as a whole. Use industry statistics to support your forecasts, to give them a strong grounding.
The more you can flesh this out, the better. For instance, give predictions for repeat sales based on how often customers are likely to need your product or service (i.e. replenishment rates). Additionally, try to pinpoint peak times of year when you think your business will be particularly busy.
It also helps if you can illustrate how the loan funds will actively drive revenue growth. Let’s say you’re going to use the funds to boost your online presence: can you predict how online sales will increase on the basis of an increased paid ad spend?
Finally, no matter how well-worked your calculations, there will always be an element of ‘crystal ball gazing’ when presenting predictions to lenders. To try and make your predictions seem more solid, you might want to consider presenting your figures in terms of best case, worst case, and in-between scenarios.
Need some more help on getting your costings right while still staying competitive? Check out our help centre for more hints and tips.