How to give your finance application the edge

If the latest statistics are to be believed, the alternative finance industry is set to be worth £20 billion by 2020.

Lenders in this market aren’t subject to the same restrictions as banks, which sounds like great news for SMEs who have big dreams and modest budgets.

However, finance providers have their own criteria for lending so you’ll need to make sure you go in prepared.

Whether you’re filling in a form online or running headfirst into the Dragon’s Den, here are six things you absolutely must do before you apply for funding.

Research your options

It’s crucial to research the type of alternative finance that best suits your business needs, as each type of lender will require a different approach.

It’s even better if you can build a relationship with the people at the lender you would most like to work with before you ever need a loan.

Everyone does business with people they like and trust, so let potential lenders get to know your company long before you need their help.

Demonstrate the what, why and how

Put together a clear explanation of how much your company needs to borrow, what the funding is needed for and demonstrate your logic of how the loan would benefit the business.

You’ll also need to explain why it’s important that your financial needs are met and how the funding you are requesting will fulfil those needs.

Don’t forget to include a bit about your customers, competitors and any market research you’ve undertaken or can use to help your argument and whether the funding will help you to fill any specific gaps in the market.

Next, you should describe when and how you will utilise the capital you secure, along with details of who will be responsible for handling the funds.

Finally, make sure you describe how you will measure your business achievements and determine whether the funds have been well used.

Write your business plan

Do you have a vision for your enterprise?

An official business plan might not be at the forefront of your mind when you’re running a small to medium-sized company, but an outline of where you’re headed is crucial when it comes to applying for funding.

Don’t worry about coming up with lofty goals to impress creditors, they just want to know that your business model is sound and that you have realistic growth expectations.

Do the maths

SMEs can get funding anywhere from a couple of thousand pounds into hundreds of thousands so you’ll need to accurately work out how much you need.

Too many companies under-estimate how much money they need, but equally asking for too much makes you look inexperienced, so devise your budget carefully based on profit and loss and cash flow statements.

The closer you get to the higher end of the borrowing scale the more a lender is going to examine your finances so make sure you’re able to provide accurate forecasts and extensive financial plans.

For a small start-up, providers will only need evidence that you have a good sales pipeline and a generally solid business, so provide assets such as invoices to support your application.

Make it easy for them to say “yes”

Lenders want to see detailed accounts of your business structure, ownership and key customers and suppliers.

Having all of your business accounts and other supporting documentation properly processed and filed therefore shows lenders that you’re serious about your finance application.

It also really helps to have ISO accreditations for your paperwork to show that you have meticulous control over your business management and financial information; but it’s not essential.

Get your debts under control

It should go without saying that there is little point in hiding the truth about your business’ financial history when you apply for a loan.

Most alternative finance lenders can and will check your credit rating, so it isn’t worth trying to lie about or cover up any issues.

Lenders don’t want you to borrow more than you can realistically afford to pay back, so you need to know what options are available to your company as it truly stands.

While it’s best to keep your debts to a minimum, remember that you can still get a loan even if you have a poor credit history.

Some lenders are able to judge your business on how it is doing right now using modern underwriting techniques, despite a history of late payments or CCJs, meaning you don’t need to give up on your business dreams if you’ve been rejected for credit elsewhere.