5 Actionable Tips To Rocket Your Appeal To Lenders
Business finance approvals aren’t dictated by black magic, despite what it might feel like. Instead, lenders use their own algorithms to decide whether your business is worthy of finance, and at what rate.
The chances of approval, and at what rate, almost universally come down to one simple principle: The risk/reward ratio. Let me explain.
If your business is deemed to be higher risk, in return a lender will want a higher reward e.g, charge you a higher interest rate. Crucially here, this principle can be flipped on its head. Low risk businesses attract lower interest rates and more lenient terms, because the lender is more confident that you can pay your loan back.
Focusing on five easy-to-change points that can often squeeze the lenders’ confidence is a great place to start.
1: Don’t Apply Like There’s No Tomorrow
When you apply to a lender, the chances are it’s going to leave a mark on your business credit rating. Alone, that’s no big deal. But if you keep going to multiple lenders, each one will leave a mark, and each one will see the other lenders’ marks.
You might just be excited to get a new project off the ground, but this can indicate desperation to lenders. And, you guessed it, desperation can be linked to risk, and then to approval and interest rates.
2: Keep Your Personal And Business Accounts Separated
Especially for smaller businesses, it can seem most efficient to just pay for this or that from another account. But before you know it, it becomes easier to lose track of your cash reserves and can cause problems with cash flow.
This can also make it harder to spot potentially fatal problems in your business accounts, such as insolvency. Again, this increases risk to the lender.
3: Keep It Simple, Stupid
When the US Navy coined the term in 1960, I bet they never expected it to be used like this. But it’s true.
By complicating your financial and business structure, even if it makes perfect sense to you, can confuse lenders. Look at it like a jigsaw puzzle. You know that the crucial pieces are in your kitchen drawer and bathroom cabinet, but how is your lender meant to know?
4: Don’t Lie To Yourself, Or Your Creditors
Always pay your bills on time, and if you can’t, be honest with yourself and your creditors. If you are about to go into an overdraft, call your bank. If you are short on an invoice from a supplier, call them and work it out.
Often your creditors will be much more receptive the earlier you contact them. And by not burying your head in the sand, you can save a negative mark on your credit file and retain your future lending appeal.
5: Don’t Spend Your Capital, Invest It
You need business finance for a reason, and lenders want to see that you’ll spend it wisely. Day-to-day this means being smart when you weigh up your options. Do you really need a new Miele £870 coffee machine for your office, or could you settle for a £100 option and invest in a new PPC campaign with the spare £770?
The long and the short of it is, you should be using your accounts to demonstrate your fiscal responsibility. Spilling money like a chocolate teapot doesn’t inspire confidence that you will be able to pay the loan back, increasing risk for the lender, and rates for you.
Let’s Wrap It Up
If there’s any chance that you will require or desire business finance in the future, keep these tips in mind. Of course, five points can’t possibly cover everything a lender might see as a risk, but is a solid foundation for a strong and hardy business.
If you are considering business finance, feel free to give us a call to chat about your needs and further tips to increase your chances of approval. We are experts in finding businesses access to the most affordable and flexible finance on the market, from a variety of sources.