I need a business loan - what can I do?

Securing a business loan remains difficult for small and medium sized companies. Is there anything that businesses can do to make raising cash any easier?

Small to medium companies still seem to be struggling to get credit. A study by Graydon conducted in Q3 2009 showed that 40% of businesses were unsuccessful in their application for finance.

In February this year, MPs criticised both part nationalised Lloyds Banking Group and RBS for not lending.

The banking world claims that it is doing everything it can to provide finance for companies who ask for it. However, when questioned as to why so many applications for credit are turned down, the answer is generally that the risk of lending is too high.

Security is the key to getting a business loan

When deciding whether to lend, a bank will of course require a sensible business plan so that a judgement can be made on how the loan can be repaid. It is therefore vital that such a plan is available.

However, even with a solid business plan, as a small or medium sized business, the key criterion for access to borrowing is security.

If the business itself has no perceived assets, then a director of the business will generally be required to provide personal security for the loan or other lending facility. This will normally come in the form of the director’s house.

The introduction of the enterprise finance guarantee in January 2009 means that loans taken by small businesses under the scheme also have the added security of 75% of the loan being guaranteed by the government.

However, beware that a director will still be required to guarantee 100% of the loan. It is only if they cannot pay, that the government will then step in.

Alternative finance solutions

If you have no equity in your property or are not a home owner, you may not be able to give the security guarantees that a bank requires. If this is the case, you could consider alternative finance options.

Always consider invoice discounting and also asset refinancing as options although these solutions very often come with personal guarantee requests attached.

There are a number of private companies normally backed by wealthy entrepreneurs who may be prepared to provide finance for a business. The rates of interest tend to be high and shares in the business may also have to be offered. However, finance can be made available.

Ultimately, in the current climate, securing a business loan or other finance for your company will not be easy.

Despite other arguments that you may have heard, the banking industry has currently very little appetite for risk. In many ways one could agree that they are right not to lend where the likelihood that the investment may be lost is too great.

For this reason, notwithstanding a robust business plan, the key to securing finance will almost certainly be your ability to provide an adequate guarantee. As such you should plan for this before you even consider your application.

Talk to us about company debt rescue options http://www.company-debt.co.uk

Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.

Cooper Matthews specialise in Business Debt Advice providing straight forward insolvency advice for businesses in difficulty and business owners with personal financial problems. They have significant experience in working with small to medium sized businesses, working with Directors, Sole Traders and Self Employed.

---

Share this article:   facebook   twitter   delicious   digg   reddit   stumbleupon  newsvine