Is your company looking for finance? We can lend a hand
to help you borrow money - credit where credit is due!
Will you be secure with your loan application or is
your credit record a sad song?
A business loan is a major undertaking for a company and needs
in-depth consideration beforehand with all the usual decisions on:
- How much do you need to borrow?
- How long do you need to borrow it for?
- How much per month can you afford to repay?
- Do you need a 'holiday' from repayments at the beginning of the
loan?
- What will the loan be for?
- How will your company make a 'net profit' on the loan?
Of course, the ultimate question is to put yourself in the shoes of
your bank and ask, "Why should we loan your company this money?" If you
can't answer that honestly and with confidence then it is highly
unlikely that your bank will be able to either. Three factors will
dictate the way the bank thinks:
- Your company's credit record
- What collateral or security you can offer as part of the loan
- The presentation that you make to the bank
The first element is already written in stone. If you have a good
record or no record then you have a good chance. A bad record will need
to be made up for by the other two factors.
Collateral or a secured loan means a lower risk to the bank and,
therefore, lower interest rates. If you have a bad credit record and are
looking for an unsecured loan you will almost certainly be refused. If
you are refused, you must then advise any future prospective lender of
this refusal making further refusals more likely.
By preparing a realistic cash flow chart, quotations for equipment or
machinery and a general risk analysis of the way in which the loan will
be used, repaid and recovered by your company you help you r cause
considerably. It is quite likely that most banks do not read this
material through in any detail but the very fact that you have thought
it through is an act of reassurance to them.
Obviously when getting quotes for loans, it is important to
concentrate on the interest rates you are being offered. However
interest rates on loans can be either fixed or variable rate. Fixed rate
assures borrowers that the interest charges will not change over time
regardless of the adjustments in the financial markets. They are most
suited for long-term borrowing. Variable interest rates on the other
hand adjust up or down depending on the prevailing market rates. They
are better suited for short-term borrowers because they can be
misleading in the long term.
If you have bad credit ratings then you are unlikely to have much choice
in what you can choose from. Normally the kind of business loan to go
for is the guaranteed approval loans because they have been created with
the specific objective of helping people in such situations. The only
requirement with this type of loan is that one has a job and earns a
specific amount of money each month. The down side to these loans
however, is the high interest rates they attract. When looking for a
business loan, it is advisable to endeavour to improve the company's
credit ratings before applying for one.
In cases where the company needs to borrow only what it is sure can be
repaid, business loans offered on invoice funding are the ideal choice.
Under this, banks and other financial institutions advance money to a
businessperson based on money owed to the company by its customers. To
prove this, the company produces its unpaid invoices. These short-term
loans can help cushion a business against cash flow inadequacies.
Also available as short-term business loans are business overdrafts
which are higher cost but can be over a much shorter time. Most
companies are eligible for an overdraft if they have a reasonable
trading record and although the bank levies high charges for setting up
the overdraft and every cheque drawn on an overdrawn account, it can
still work out considerably cheaper and more convenient than a formal
loan - particularly if the financial support is only needed for a month
or two. Overdrafts are given on trust and are not secured.
Nearly every company will need financing at some point in their history.
This might be for a start-up loan, commercial mortgage, cash flow boost
or asset finance. With a good record, strong logical justification for
the borrowing and a demonstrable means of repaying, most organisations
can readily get offers of finance and then using the criteria above,
take the time to choose the right business loan.
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