Funding a small business

everything you need to know, before you sign on the dotted line!

Small business financing

Choosing the correct funding solution for any business is hugely important, and nowhere is this more apparent than in smaller businesses. Here we look at how to obtain financing for a small business, what to look out for and how to make sure you get the most from your small business loan.

Often for businesses to grow they require access to finance, and this can be a minefield in terms of information available and understanding terminology used by lenders, making it difficult for SME’s (small and medium enterprises) to know where to begin! Small business financing commonly used for the following;

· Cash flow

· Expansion

· Staff

· Stock

· Resourcing

How to get small business financing

First of all, you need to decide what type of business loan you wish to apply for. If your business is less than two years old you could still qualify for a small business start-up loan, however if you have two years’ worth of trading history you can apply for standard small scale business financing.

The key to finding the best small business loans is to do your research. This can be difficult as the majority of lending to businesses in the UK is unregulated, resulting in a lack of transparency within the industry. The different ways of financing a small business vary between lender to lender so make sure you compare like for like. Small business loan providers use the following to quote, so don’t be caught out by comparing incorrectly; interest rates, yield and factor rate.

When comparing small business financing loans, you mustn’t compare the rates alone, look at the overall cost and compare on a pound for pound basis, a repayment figure will be given to you based on the full term. Add this to any application costs or administration fees and you will have the figure to compare loans like for like.

Start-up loans for small business

When searching for a small business start-up loan, it becomes even more important to shop around and find the very best deals. The options for financing a start-up small business, can be confusing, however we have a panel of experts that can guide you through each step of the way. Merchant Advice Service, make a ‘plain English’ promise to our customers, meaning that we break down and explain complicated finance in layman’s terms. We provide the knowledge so that you can make the correct financing decision when sourcing small business start-up capital loans, our guide explains more HERE. Our experts are happy to help.


How to get financing to buy a small business

Providing you have a good personal credit file it can be relatively straightforward to secure small business financing to purchase a company. With most lenders, you will need at least at 10% deposit and have experience within the industry or a management background. The small business acquisition financing lenders will also assess the business itself to ensure that it is financially strong. There are still options open to those with adverse credit but it can be trickier. A good advisor will be able to guide you through the process and find you a range of options.

Financing the purchase of a small business will involve a fair amount of paperwork and it’s best to be prepared. When it comes to the business itself the lenders will require accounts, revenue projections and a breakdown of your future business plans. They will also need evidence of the professional valuation and business worth.

Don’t be surprised if you are asked to provide an up to date CV with details of your previous employment and experience within the industry. Other paperwork could include personal bank statements and asset and liability statements (if you own part of the business already.)

When applying for sources of financing for purchasing a small business it’s imperative that you deal with experienced banks and brokers. This way your application will be packaged correctly prior to underwriting and this will give you the best possible chance of being accepted first time. Lenders like it when all the correct information is provided the first time around, and let’s face we do too – no one likes unnecessary delays.

It’s important that you deal with an experienced broker or have a thorough enough knowledge of this area yourself to reduce the likelihood of being declined as much as possible. Multiple applications on your credit file can put lenders off and using a broker with an extensive working knowledge of the ins and outs of the various lenders criteria is crucial.


Small business debt financing

Some small businesses need finance to consolidate debts. There are a few reasons for doing so;


If you are currently paying high interest rates it might be worth switching provider to secure savings in rates. Decreasing the rate could help you to pay off your current borrowing faster.


Some businesses prefer to owe all debts to one company rather than lots of smaller debts to a few. This way they have one simple payment each month.

Financing small business debt can, for some, be a way of avoiding getting into financial difficulty. Reducing what you currently spend on debts through new interest rates or spreading the costs out over a longer term, increases the working capital within the business.

Small business equipment financing...small businesses and start-ups often wish to secure finance to purchase equipment for business use, this can be anything from computers to larger more industrial items.

Small business invoice financing

Small businesses sometime struggle for cash flow at crucial times, a short-term solution to this can be invoice financing. Funds are approved based on invoices due to be paid to the business. This type of finance is a short term loan, often agreed quite quickly and can be used for any business use such as paying larger than normal overheads or purchasing more stock. Our experts can talk you through your options when it comes to small business invoice financing.


How to get financing for small business with bad credit

Securing small business funding with bad credit can be difficult, however not impossible. Depending of the scale of adverse credit experienced and when it took place, there could still be options available. We have a hand full of lenders who will consider applications from small businesses with bad credit. Call today or read through our bad credit business loans article for more information.

Where does a small business obtain financing?

Sources of financing for a small business can be found with most high-street banks and mainstream lenders, however we suggest speaking with a whole of market broker. The reason for this is that they can compare finance from 100’s of providers and have access to deals that you may not be able to secure directly. Not only will they discuss in depth the financing options for your small business, they will also make sure your application is packaged correctly giving you the best possible chance of being accepted.

At Merchant Advice Service, we work with the very best brokers in the industry, they provide plain English advice to make sure your application goes as smoothly as possible.


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