Business Loans: How Much Can I Borrow?
Often working out how much you can borrow with a business loan can be the wrong approach to take. Not only do prospective business loan underwriters see this as a potentially desperate question, it may lead you to over borrowing and landing your business in trouble.
The best approach to take is to create a rough outline or business plan, on what you’d like to achieve with the injection of capital you’re seeking. For example, if you’re a retail business looking to expand your trading space into the stock room, you may wish to list and fully cost the following:
- Materials used when opening up the new space
- Labour for the trades doing the work
- New fixtures and fittings
- New stock required to fill the space
- Additional marketing to increase footfall and maximise the chances of success
- Anything else you can think of…
What this plan will help you with is making sure you have a full grasp of the costs involved in fulfilling your vision. At the end of the plan you will have a total figure, and this plus a % for the contingency fund is how much you should be looking to borrow.
What If My Business Is Unlikely To Get Approved For How Much I Need To Borrow?
What some of our clients do is split their plans into stages. With the retail example above, they may borrow 20% of the total cost so they can open up the space and fill it with their current inventory. This may not be the ideal solution, but what they’re doing is borrowing and then repaying a smaller loan to prove to future business loan underwriters that they’re creditworthy.
Once they have paid back the original loan, they can renew and start on the next stage of their plan until it’s fully completed.
Maybe You Need A Small Business Loan, Plus Another Type Of Finance
Many business owners are unaware of the large amount of business finance products on the market. For example taking out a loan for a new van, when asset finance is better suited due to being cheaper and more tax efficient. Or taking out a large loan for refurbishments, when a more cost effective method would be a bridging loan plus re-mortgage.
There are many types of business finance around. The best thing to do is write down a brief outline of your plans and discuss with us. We can help you understand possible options and suggest ways of moving forward.