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Over 69,000 loans approved on day one of the Bounce Back Loan Scheme

More than 69,000 Bounce Back Loans worth over £2bn have been approved during the first 24 hours of the scheme.

The seven largest lenders (Barclays, Danske, HSBC, Lloyds, RBS, Santander and Virgin Money) received more than 130,000 applications on the first day of the scheme, which launched on Monday.

Chancellor Rishi Sunak said: “Small businesses will be the driving force of our recovery from the pandemic, creating jobs and securing economic growth.

“These loans will help them bounce back from this crisis – getting money fast – so it’s great to see close to 70,000 businesses benefitting in just the first day.

“It’s vital this speedy progress continues in the days and weeks ahead.”

Small businesses can get a loan of up to £50,000 interest free for the first 12 months, while the amount borrowed is capped at 25% of turnover.

Stephen Jones, chief executive of UK Finance, said: “Bounce Back Loans form a key part of support measures put in place by the government, working with the banking and finance industry to help businesses through these difficult times.

“This scheme gives smaller businesses including sole traders rapid access to debt finance if they need it. Bank staff have been working flat out since the scheme launched on Monday morning to process applications and get money out to eligible borrowers and these figures are testament to their hard work and the commitment of the industry to support businesses of all sizes.

“While businesses only need to fill in a simple form online to apply, it’s important to remember that this type of finance is debt, not a government or bank grant, and will need to be repaid by the borrower over the six year term of the loan.

“All businesses should consider carefully their repayment obligations before completing a Bounce Back Loan application. Under the terms of the scheme lenders are required to seek to recover any unpaid interest and principal on Bounce Back Loans from borrowers.”

BY RYAN BEMBRIDGE

Source: Property Wire

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10 Common Finance Hurdles UK SMEs Face (And How To Overcome Them)

If you run an SME, you probably are familiar with these all too well. But it’s easier to overcome these finance hurdles than you think!

First of all, let us begin by admitting and acknowledging the harsh reality. The UK economy has been through a constant grind of speculation, debate and uncertainty over the past few years, all thanks to Brexit. Without commenting on the issue, we would just like to mention that not all SMEs are happy about the way things have been unfolding. Nearly 40% of UK SMEs think that Brexit – if and when it actually happens – will leave them worse off in terms of financing and sales. That’s a very serious trend.

However, that’s only a part of the finance riddle. There are quite a few non-seasonal hurdles that SMEs have to face while applying for and getting commercial finance. Here are our picks (and some advice from our experts on how you can easily overcome them).

1. The Personal Credit Vs Commercial Finance Conundrum

This is by far the most common confusion we’ve seen SMEs struggle with. Much of this has to do with the fact that most SMEs are built ground-up without any solid plan for expansion. This, however understandable, is not the right approach. When you start a business, it’s advisable to treat it like a business. Sure, you can use your personal credit cards or even mortgage your home – but you need to know where to draw the line.

Personal loans tend to reduce your creditworthiness, making things difficult for when you want to get a business loan. The best way to overcome this conundrum is to separate personal and business finances as strictly as you can. Your personal creditworthiness should be a credit to your business – not a burden.

2. Bad Credit

This is the most obvious hurdle. If you have bad credit, you’re going to struggle to get a good deal (or any deal, for that matter). It’s important to know what impacts your credit in addition to the usual do’s and don’ts.

We’d like to note here that having bad credit doesn’t spell the end of the road by any stretch of imagination. We, at Commercial Finance Network, regularly broker bad credit loans for many otherwise successful SMEs. You can read more about our adverse credit mortgage services here.

3. No Credit History

Not many SMEs take business credit seriously, thanks mainly to the fact that most operate as sole traders. Quite naturally, it’s not very common for SMEs in the UK to have business credit history.

The easiest way to establish business credit history (you’ll need it when you want to apply for high-end commercial finance products) is to register your business and start trading regularly. Most companies, just by trading actively, are able to establish various credit tracks that help towards their credit history. To speed up the process, you can also use easy-to-access finance products like credit lines, business credit cards, overdrafts and so forth. Short-term finance products like bridging loans and invoice finance can also be very helpful in building a good credit score.

4. Multiple Applications

As is the case with personal credit, your chances of getting approved for a commercial finance product may get severely hampered by multiple applications. If you overestimate your creditworthiness and have half a dozen applications turned down, it’s almost always going to leave a dent in your business credit history.

This, however, is easily avoidable. If you want to directly work with lenders, make sure you are familiar with the lender’s expertise, expectations and track record. If not, you can send your applications through a reputed whole of market broker like Commercial Finance Network to improve your chances of getting an affordable and customised finance deal.

5. Going After Incompatible/Unsuitable Products

Another easy to avoid problem.

If you’re in need of commercial finance, make sure you know what exactly it is that you need. Specialty finance products are always more affordable than blanket packages. For example, many SMEs apply for a generic business loan to cover all sorts of expenses, instead of going for specialty, focussed loans. This not only makes things more expensive; it also increases the chance of having their application rejected.

An easy fix is to know what commercial finance products are available out there, and how you can best customise them to your needs.

6. Not Making The Right Points

This shouldn’t be a point of discussion, but we’ve seen too many SMEs fail to paint themselves in good light.

If you want to work with specialty lenders (like the ones we have on our panel), you will need to make sure that you know your business inside out. And by business we don’t just mean your day to day operations. You need to be able to demonstrate how you are planning to fuel the growth and overcome the competition. A detailed business plan that touches on all these point (and more) will always be helpful in getting lenders on board.

7. Weak Cashflow

This doesn’t and shouldn’t apply to every SME out there. However, you need to ensure that the cashflow numbers are always as healthy as possible.

Lenders, by and large, look for affirmative signs that tell them that you’ll settle the dues. And there’s no better sign of surety than strong cashflow numbers month after month.

8. Short On Security

Many commercial finance products require you to attach a security. It could range from personal guarantees and shares to properties and even vehicles.

Some specialty products (a good example is that of invoice financing) may not work at all without an inherent security. So, before you apply, know how these products work and what sort of security might be needed to get your application through.

9. No Trading History

Many SMEs try to apply for commercial finance right after they start trading. This is a rather hasty approach, because at that point, no SME can show any sign of credibility – no credit history, no volume of transactions and no track record.

To avoid this, we advise our customers to establish a long-enough trading history (typically six months or longer).

10. Tie All The Loose Ends

If your business has availed any loans in the past – however small the amounts – make sure you pay them off at your earliest, before you apply for commercial finance. If you aren’t in a position to make these payments right away, make sure these loans are represented correctly on your credit file, so that lenders can understand why you needed them and how you’re going to pay those back.

Commercial finance can appear daunting – but trust us, it’s anything but. With specialist lenders who know what your business needs, we’ve got you covered. To request more information or to request a call back, please call us on 03303 112 646. You can also get in touch with us here.

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Why don’t banks care about SMEs?

For a service sector dealing almost solely with numbers and structured data, the world of small business lending could not be better suited to disruption by digital machines.

But recently, Bank of England governor Mark Carney rightly pointed out that, despite small and medium sized enterprises (SMEs) facing a £22bn funding gap, almost half don’t plan to use external finance, citing the hassle or time associated with applying.

The governor announced that the Bank would therefore champion a data platform to help SMEs have an easier time when applying for credit. The vision builds on Open Banking, bringing together data from a wide range of sources including Companies House, HMRC, utility companies, and telecommunications firms.

With a single “data passport”, SMEs could easily apply for finance at dozens of providers with the click of a button.

So how has it come to the humiliating point that the industry’s own regulator is proposing innovations that could accelerate growth and improve customer service? What are the banks’ armies of IT and product development staff doing?

The governor’s comments underscore a failure by banks to embrace the digital economy and invest to keep pace with the changes happening to their customers.

SME owners don’t just expect their bank’s lending process to be as seamless as their personal loan applications – they also expect banks to recognise how the financial makeup of firms has changed thanks to the digital revolution. Most SME financing from banks is centred around equipment or property assets, but digital services firms have neither.

Innovative finance providers, including my own company, have already embraced the data sources that the Bank of England will promote to open up access to finance.

Powered by new data connectors like DueDil, TrueLayer, and Codat, we automate the analysis of public data, bank transactions, and accounting records to make it faster and easier to provide credit to small businesses. Since launching, we have facilitated over £100m of lending to growing SMEs, and are rapidly expanding our operations to help more businesses across the country.

So why haven’t traditional banks made similar investments in order to price loans in the digital age? In my view, the reason is simple: it is not profitable for them to do so.

Under Basel III – the global rules governing how banks are regulated – banks are directed to hold almost double the amount of capital against an SME loan compared to a buy-to-let mortgage, for example. Holding more capital means making less profit, so all else being equal, banks naturally double down on loans that require lower amounts, such as mortgages.

And so we have seen banks close branches, sack business lending sales teams, and fail to innovate, while instead channeling more lending into the unproductive housing market, rather than the productive SME economy.

While challengers and fintechs are happy to lead the innovation in business lending, without structural reform of banking capital rules, we are unlikely to see strong competition from banks.

This is a challenge that Carney’s successor must tackle if the UK is to unleash the full potential of its SMEs.

By Greg Carter

Source: City AM

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Government provides £200m for small firms as Brexit threatens EU funding

The UK government has handed over £200m to help support smaller businesses in the 2019-20 financial year as the future of European Union funding remains uncertain.

The Treasury announced today that it has made the cash available to the British Business Bank, which provides loans to small companies looking to increase in size through investment and venture capital firms.

Chancellor Philip Hammond suggested in the 2018 Budget that £200m could be made available “to replace access to the European Investment Fund [EIF] if needed”.

The EIF is an EU agency that has been a significant source of funding for small UK businesses that struggle to get credit, but Brexit means British firms look likely to lose access to this money over the long term. The Federation of Small Businesses (FSB) today voiced concerns over the loss of EU funding.

The Treasury said the money will be available from today and will cover this financial year. Further funding arrangements have yet to be made and will depend on Britain’s future relationship with the EU.

Venture capital and investment firms will be able to approach the British Business Bank, a public-private partnership, to bid for the extra £200m to invest in small UK firms.

Business minister Kelly Tolhurst said: “This funding, supported by the government-backed British Business Bank, will play a key role in supporting innovative firms access the finance they need to grow and thrive.”

British Business Bank chief executive Keith Morgan said: “We welcome HM Treasury’s confirmation today that this allocation of £200 million is now available to increase provision of much-needed scale-up capital for innovative businesses across the UK.”

The national chairman of the FSB, Mike Cherry, said: “The British Business Bank provides vital support for thousands of smaller firms – particularly in parts of the country where funding is hard to come by – so it’s good to see it receive another £200 million following the launch of the £2.5 billion patient capital programme last year.”

“However, with Brexit on the horizon, serious questions regarding future funding for a UK small business support network that’s heavily reliant on the EU remain unanswered.”

He said: “A promised consultation on the post-Brexit Shared Prosperity Fund that would replace EU funding streams is yet to materialise. The £200 million is welcome, but we need to start thinking much bigger about future investment in the small firms that make-up 99 per cent of the UK business community.”

By Harry Robertson

Source: City AM

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Best Ways to Fund Small Business

Small businesses may need extra funds for various reasons. When a market is growing, the company will be in need of additional money.

Clients could be late on paying the invoice, or some clients may cancel collaboration with your business. Small business needs steady cash-flow to get ahead of the competition and grow on the expected rate. Small business financing is not a difficult task, but it includes lots of tools. Today we would love to compare different financial tools.

Traditional Bank loans

After a market crash in 2008, getting traditional bank loans became very hard. That’s a complicated process, especially for small businesses. Most of the small business has no huge credit history with financial institutions so that they will end up with a declined request.

Banks always ask you about lots of stuff. They will ask about the past relationships with the banking system, and you may also give them your business credit score. As for today, it’s a very tough task to get approved by the traditional bank loan system. Banks only accept up to 25% of applications. As for the quick cash, traditional banking loan is not an attractive financial tool.

Business Line of Credit

When financial institutions give you access to a certain amount of money, it’s called a line of credit. They give you a chance to access specific budget whenever your business needs.

That’s exciting tools for small businesses. The company can take any amount from that budget and replenish it anytime. As you recharge it, you can start the same cycle again. That’s a win-win position for both, small business and financial institutions.

Unlike the traditional banking loans, you don’t have to follow a specific monthly schedule to pay for credit. With a line of credit, you take the money and replenish it anytime your company can use the payback.

Keep in mind that a business line of credit is only for a certain amount of money, and you can’t use for big goals.

Invoice factoring

It’s a very easy and straightforward process. When a small business has unpaid invoices, owners can get in touch with “factoring” companies and sell unpaid invoices to them.

It’s not a traditional loan; your company gets paid for the work that’s already done. Well, it has some side effects you may face while using it.

The factoring company will need access to personal information of customers so that it may be a problem for small business. Most clients don’t want to give their personal information to third parties so that they will complain. Be ready for complaining from customers, if you choose invoice factoring as a financial tool.

As for today, there are different ways to fund your small business rather than traditional banking loans. You may need to hire new faces in the company or buy new equipment for efficient work. No matter what is your reason, as a small business owner, you’ll always be in need of extra funds. Steady cash flow means too much for companies, so choose a reliable and trusted financial tool wisely, before going for it.

Source: FinSMEs

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Government Grants for SMEs in the UK – A Hands-on Guide

Winning a government grant can be a real boon for SMEs looking for funding, technology or expertise. In this post, we will discuss everything an SME needs to know about such grants.

Running a successful business is all about pre-empting, overcoming – and, at times – walking around hurdles. These hurdles come in every shape and size you can think of – from HR and compliance to marketing and branding. But if there’s one common denominator among all the problems businesses face, it has to be the money.

Take funding, for example. SMEs around the world and across the board are known to struggle when it comes to raising money. SMEs in the UK are no exceptions to this. In fact, so difficult is raising money via traditional, mainstream and high-street lenders that SMEs have gradually started thinking beyond banks and towards alternative funding channels.

In such times, the role played by the government becomes more crucial than ever. Government grants are, without a doubt, the face of this role. This is the reason why understanding how these grants work and how your SME can give itself a good shot at winning one are important. In this post, we will try to cover what government grants for SMEs are, how they work and how to find and apply for a grant that is suitable for your business.

What is a Government Grant?

A government grant is essentially an incentive package made available by various government bodies and organisations to individuals as well as businesses. Government grants (barring the finance grants) are usually non-repayable.

Depending upon the nature of the grant body and the grant objective, these grants can come in a variety of sizes and formats. As far as small businesses are concerned, such grants range from £1,000 to £500,000. Some of the bigger and more prized grants can go even higher.

Why Are Grants Given to SMEs?

Government grants have been there for a long, long time. The names and forms they have taken may have changed over time – from business subsidies to business support – but the objectives haven’t. If you were to analyse government grants across business sectors and districts, two things become very clear:

  • Most government grants have a singular objective – to keep the economy growing. This objective takes many avatars such as employment generation, sectoral development, regional development and so on. Grants that have these objectives are more or less permanent fixtures.
  • Other grants aim to follow, aid and complement ongoing policies of the government. Such grants typically reflect the incumbent government’s views in regard with trade, environment, social welfare, technology etc.

To put things in a more sweeping perspective, we can say that government grants have three clear objectives:

  • Boost economy through regional and local development
  • Generate employment by supporting businesses
  • Create an economic environment that encourages innovation, entrepreneurship and ‘home-grown’ research

As of 2018, nearly 200 government grants are available for SMEs in the UK.

Why SMEs Should Take Government Grants More Seriously

Even though government grants are incredibly appealing, very few SMEs actually realise the potential of such grants. Here are some features of government grants that SMEs can’t afford to overlook:

Government Grants Are Diverse

Very specific grants are available across all business sectors. This allows SMEs to compete more fairly for similar grants.

Grants Are More Than Just Money

As we will discuss in the next part of this post, government grants offer much more than just money.

Winning a Grant Validates Your Business Idea

A large number of SMEs are stuck in the validation loop that stops them from expanding or trading more confidently. Inadequate funding makes matters even worse. A grant can be a good way to turn the corner in such times and receive external recognition and validation.

Government Grants: Shortcomings & Drawbacks

While the features associated with government grants are certainly attractive, there exist shortcomings and drawbacks you should be aware of:

The Competition Is Fierce

The competition for government grants is fierce to say the least. Since young businesses, start-ups and established businesses all tend to spill over into the space that’s reserved for SMEs, the competition can become entirely off-putting.

It Can Take Months Before You See the Money

Applying for a government grant isn’t always the smoothest of processes. It can take many months for the assessment process to conclude, making grants irrelevant for businesses that require urgent funding.

Grants Can Never Replace External Funding

Given their limitations in size and scope, government grants cannot replace external, third-party funding channels – not in the long run, anyway.

Types of Government Grants for UK SMEs

In our guide to start-up funding, we have already discussed the various types of government grants. In the context of SMEs, these types remain more or less the same.

Direct Grants

A direct grant is a project-specific and objective-driven cash reward to businesses that meet the criteria. This is what most businesses think of when they think of a government grant.

Despite being the most popular and sought-after type, these grants come with a host of limitations and riders. As things stand today, direct grants focus more on young SMEs (trading for 5 years or less) in economically disadvantaged regions and districts. Furthermore, the grant amount is usually on the lower side. Given these facts, one would be forgiven to think that direct grants are good for encouraging businesses, but not necessarily supporting them.

  • Direct Grants Are Not Free Money!

It’s a common misconception among business owners and operators that winning a direct grant is just like winning a lottery. The fact is direct grants are nothing like free money.

Almost every direct grant scheme requires you to match the grant amount – a pound for a pound.

In other word, a direct grant of £10,000 will need you to raise £10,000 on your own before you see any of the grant money.

We, at Commercial Finance Network, have helped numerous SMEs raise the capital required to win direct grants. You can learn more about our services here and request a free quote here.

  • Most Direct Grants Are Project-Based.

Unlike other grant types, direct grants are almost always project-based. The grant objective clearly tells you what you’re expected to spend the money on. Some grant bodies go so far as to monitor the spending.

  • Example

A good example of an SME direct grant is the Business Energy Efficiency Programme organised by various local councils in the West Midlands. This direct grant offers rewards up to £20,000 for the qualifying businesses that implement energy saving technologies in their operations.

Finance Grants

If you are looking for a well-meaning financing support for your SME, finance grants should always be the focus of your search.

A finance grant combines the features of grants and loans. Also known as ‘soft loans’, such grants are an excellent way of raising a significant sum of money for SMEs. Typically, the loan amount can go from as low as £5,000 to as high as £250,000. Finance grants are usually available around the year. Unlike direct grants, however, finance grants are repayable. The terms of repayment are subsidised through public funding. So, you may either get a loan that’s fully free of interest, or you may get a lenient repayment schedule with generous repayment holiday months/years.

  • Soft Loans Are Not Always Project-Based

Unlike direct grants, finance grants (soft loans) aren’t always project-based. The grant objectives can be wide-ranging to allow you more control over the spending.

  • The Qualification Criteria Can Be Stringent

Quite a few finance grants require you to prove that your SME is unable to secure funding from other mainstream lenders. This translates into additional documentation and longer processing times.

  • The Grant Amounts Are Flexible

The biggest advantage that finance grants offer is their flexibility. You can negotiate the loan terms and amounts with the grant body (much unlike direct grants that leave no room for negotiation).

  • Example

ART Business Loans make for a good example here. This finance grant offers low-interest loans to businesses that generate employment in the West Midlands. The loan size ranges from £10,000 to £150,000.

The UK Export Finance (UKEF) scheme is also a very fitting example of how government grants are at their efficient best when partnered with private investors and lenders. It aims to promote exports to our major cross-border trade partners by helping SMEs raise funds, win overseas contracts/orders, fulfil these orders and access trade finance.

Tax Relief Schemes

Tax Relief Schemes are indirect grants offered to qualifying SMEs. There are little to no upfront benefits to such schemes. In the long run, however, these tax savings can be very attractive. Here are some common and ongoing tax relief schemes that you can focus on:

Tax Relief Schemes for SMEs

1. Employment Allowance

Most businesses are required to contribute to the National Insurance every year. By securing the Employment Allowance, your business can save up to £3,000 on these contributions.

2. SME Business Rates Relief

All properties owned by businesses are charged business rates by local councils. If your business holds one property (valued at £12,000 or less), you can apply for 100% Small Business Rates Relief. For businesses holding two or more properties, it’s still possible to get proportionately lower relief.

3. Corporation Tax Reliefs

  • Capital Allowances let SMEs claim tax reliefs against the purchase of business assets.
  • R&D Reliefs are meant to encourage R&D spending.
  • Creative Industry Tax Reliefs provide special tax reliefs to ‘creative’ industries such as arts, film, theatre, music and digital media.
  • The Patent Box is one of the most exciting tax relief schemes out there. This scheme allows inventors and businesses to claim tax reliefs against profits made by the use or licensing of their patents.
  • There are many other Corporation Tax Relief Schemes tailored for the need of SMEs. You can refer to this page to learn more.

Tax Relief Schemes for SME Investors

1. Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme is perhaps the strongest investment magnet for SMEs. Under this scheme, SME investors can claim tax credits and reliefs of up to £300,000 each year. This scheme applies to total investment of up to £5 million per year.

2. Seed Enterprise Investment Scheme (SEIS)

This scheme is similar to EIS but limited in scope to serving start-ups and young businesses. If your SME has been trading for no more than 2 years, your investors can claim tax credits under the SEIS.

SME Grant Finder: How to Find Government Grants

Searching through available government grants is no longer a dreadful or time-consuming task. Just head over to the Business Finance and Support page and filter through the available options. This page allows you to zero in on government grants based on your location, business type, size and turnover.

5 Steps SMEs Need to Take to Win Grants

1. Applying Early

Applying early gives you an important edge over competitors. To be able to do this, you need to be aware grant announcements.

2. Preparing a Detailed Business Plan

It doesn’t matter what sort of loan, support or grant you are after – you will always need a business plan that paints a clear picture of the present state of your business and your future objectives. A good, in-depth business plan that answers questions even before they are asked enormously improves your chances of winning government grants.

3. Understanding the Grant, the Grant Body and the Grant Objectives

If your grant application is rejected, it’s very much likely that the fault lies neither with your business nor the grant – it lies with the incompatibility of your objectives with those of the grant body. The best way to avoid this is to apply for grants that share objectives with your business.

4. Having Professionals on Board

If you don’t have prior experience in applying for grants, it’s always a good idea to hire grant experts and consultants.

5. Preparing a ‘Winning’ Grant Application

A generic, off-the-bat grant application is never going to win you a grant. Preparing a grant application that lets the grant body know how you share in their objectives is the key.

We Help SMEs Grow!

Government grants offer a host of opportunities for SMEs to raise the much-needed funding. It is, however, never a good idea to rely heavily on government grants. The timelines are unpredictable, the amounts are usually lower than what you need and you will, in most cases, need to raise external funding anyway.

But it’s not all bad news – there are easier way to fund your business.

Commercial Finance Network – a leading whole of market broker – has helped many SMEs across the UK secure fast and low-interest funding. To know more about our industry-leading finance services, you can visit this page.

Check your eligibility for a low-interest business loan and other finance products by requesting a free quote here.

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Get Your SME Finance-Ready – 5 Actions to Improve Your Business Loan Eligibility

Looking to get an SME loan? Avoid these common mistakes to immensely improve your chances!

Taking the entrepreneurial leap of faith might well turn out to be the most rewarding thing in your life. The sheer joy of seeing a plan, a concept – a dream, indeed – materialise is indescribable. But to get there, you’ll first need to take off the rose-tinted glasses.

The world of business is ruthless beyond measure. No industry, no sector, no niche is devoid of competition. Therefore, your business – like every other business – will need to withstand this competition day and night in order to survive, thrive and, eventually, succeed. And this process invariably involves scaling up your business – a point at which drawing strength from your personal savings or seeking help from friends or family just isn’t enough. This is when you, as an SME, are most likely to seek external funding and financing. This, also, is when you have every chance of seeing multiple business loan applications turned down.

How does a young SME go about securing a business loan that’s both substantial and fair?

That’s a question that needs to be discussed in multiple blogs. For now, we will take a look at the steps that you can take to give your business the best chance of getting business loans. Before that, however, it will be more prudent to understand how the lenders perceive SMEs.

SME Lending Is Changing

  • The lending landscape is fast changing.
  • Open Banking will make getting business loans less difficult for SMEs.
  • Banks’ isn’t the only voice that matters.

SME Lending in the UK – A Stat Check

  • Asset finance, general business loans, equity finance & most other commercial SME loans have grown in size since 2015.
  • As many as 7 in 10 small-business loan applications were approved by lenders in 2017-18.
  • 62% of all SME finance applications in 2017-18 stated business growth as the principal reason for the loan.

British Business Bank SME Finance Report 2017-18

UK Finance Quarterly Reports

Liberis Business Survey 2018

Regardless of the narrative or the wider picture, it’s safe to say that the lenders have always dictated the terms of the commercial finance game. They have had the absolute right – at times, an unfair proposition – to accept, modify or reject business loan applications from SMEs as they see fit. While this isn’t likely to change anytime soon, there are definitely some levellers being introduced by the government to make the playing field more even.

The first amongst this is the rather dramatic arrival of Open Banking (better known as PSD2 across mainland Europe) earlier this year. This purported game changer will not have as much of an impact on everyday banking as most thought. The lending game, however, has been forever changed since its introduction. Thanks to the absolute customer-side control of finance data, your business can now request – nay, compel – big banks in the UK to share your 12-month financials, credit history and other data with private, P2P or overseas lenders. While such data sharing isn’t a new concept, the edge lies in the fact that Open Banking will let the borrower have more control over their data. What this means, essentially, is that getting your SME finance-ready will be much, much easier now than it was five years ago. The lenders will be able to make better, more informed lending decision based on this data – just about as seamlessly as personal loan or credit card applications work.

This development is in perfect alignment with the Small Business Enterprise and Employment Act of 2015 that had made it mandatory for banks and institutionalised lenders to share finance data with alternate credit partners for SME loans.

The fact of the matter is – if you run an SME in the UK, you have a great chance of securing a business loan today than ever before.

What Does It Take for an SME to Get a Business Loan in the UK?

The lending criteria differ from one lender to another. They also depend upon the type of the loan you seek. Some of the most common and fundamental lending criteria for SMEs in the UK are:

  • The borrower should be a registered business entity (Sole Trader, LC, LLP or PLC).
  • The business should have a ‘demonstrable’ trading history of 18-24 months.
  • The director(s), owner(s) or proprietor(s) should be able to furnish personal guarantees if required.
  • The business financials should be able to demonstrate a certain minimum turnover (subject to the amount of the loan).

Understanding Why the Lenders Are Forced to Say ‘No’

Despite the lending atmosphere that’s gaining in positivity as far as SMEs are concerned, quite a few business loans are still routinely declined. In this light, it’s important to understand the common reasons why small-business loan applications fail to get approved. This will help you eliminate a major hurdle in getting finance for your business.

The Business Isn’t on Top of Their Credit Score(s)

Countless SME loan applications fail to pass the very first check that banks perform – the credit check. What’s more astounding is the fact that many SME owners aren’t even aware of the credit trail they leave while their business is trading.

The Business Has Problems

It’s a vicious cycle but that’s how it is.

Most businesses apply for loans when there’s a cash crisis. And lenders don’t like such situations. This Catch-22 is perhaps the biggest hurdles SMEs face in getting approved for a business loan. Along with cashflow problems, other problems such as a questionable business plan, a history of poor business decisions, lack of expertise at the helm and inability to prove the growth potential often lead to loan applications being turned down.

The Time Just Isn’t Right

You cannot apply for a regular SME business loan if your business is just starting up. Most lenders will want to see a trading history of no less than 2 full years. Similarly, if you’re applying for a business loan and your business has been trading for 20 years with little to show for it in terms of growth, the lenders won’t take a liking to your application.

There’s No Collateral Provided

Unsecured business loans attract closer scrutiny from lenders. So, for an SME that doesn’t have a great deal of creditworthiness, it becomes imperative to provide additional security. Business loan applications that aren’t backed by adequate collateral or guarantees usually get declined.

The Plate is Already Too Full

Just like personal loans and mortgages, you cannot expect to get a business loan for your SME if you already have a number of repayments to take care of. A business loan application from an SME dealing with a plate full of loans is almost certain to get rejected, leading to a soft credit enquiry mark that further worsens the situation.

Steps You Need to Take to Improve Your Business Loan Eligibility

There’s no telling what the lender will think of your business loan application. Perception is a strong phenomenon and is still relevant despite much of the work being handled by tried-and-tested credit algorithms. You can, however, take the following steps to make sure that your application stands a very good chance of finding takers.

1. Make Sure the Foundation of Your Business is Strong & Convincing

You want the foundation of your business to be sound, strong and stable. This is vital not just to secure a business loan but also to achieve profitability in the long run.

When you know that your business has a great shot at success, you should be able to convince other people of the same. To convince lenders, you will need a great business plan – especially when your business is relatively new. A good business plan should be accompanied by a cause-and-action plan. This will involve a good explanation of why your business needs a loan, how you plan on using the funds and what your repayment schedule will be like.

A fully customised proposal with all the relevant details shows the lender that you’re serious about the business. This always works in your favour as lenders perceive you as less of a risk and more of an opportunity.

2. Get Your Business Financials in Order Before You Apply

Many businesses get this wrong – but you shouldn’t. Never apply for a business loan if you don’t have an independently audited, tax-certified financials for at least two years in your possession. These financials typically include the tax returns, quarterly balance sheets, cashflow analysis and profit/loss statement.

It’s common for lenders to also request projections over the loan term. So, it’s a good idea to prepare revenue, profit/loss and assets/liabilities projections for up to 5 years before you approach a lender.

3. Know and Understand Your Credit Scores

Regardless of everything else, most lenders will eventually take a look at the credit history of your business before making a decision. Any obvious red flags on this report – from delayed payments and missing records to frequent enquiries and grave defaults – will hurt your application. So, it’s important to know and understand your credit scores before you apply. This includes building a solid credit history for your business as well as personal accounts.

Less than 20% of all SMEs in the UK proactively monitor and assess their credit scores – you don’t want to be a part of that group!

Some useful steps in this regard are:

  • Checking your business credit score once every quarter
  • Filing for corrections when you spot inadvertent mistakes or errors
  • Using a dedicated business account for your business activities
  • Utilising credit facilities such as overdrafts and credit lines judiciously
  • Making timely repayments
  • Not making ‘hard’ enquiries for credit unless you are ready to submit a full application

4. Let the Lenders Know That You Are Invested

A commonly ignored and often decisive mistake is the failure to demonstrate your involvement in your business. Many businesses – especially the ones not registered as Sole Traders – face this problem, just because there’s no ‘face’ attached to the business.

An easy way to avoid this is to make an offer for a collateral. This shows the lenders that you are willing to share the risk with them. Secured loans are always easier to go through.

5. The Time and Timing – Both Should Be on Your Side!

As a rule of thumb, you shouldn’t go searching for a business loan when your business finds itself cornered with nowhere to go. This will only lead to you ruining your credit history with multiple rejections. Having enough time at your disposal is the key. This is where good business intuition and experience will come in handy for you.

As far as getting the timing right goes, you should be well aware of the market situations before applying for a loan. Has the industry your business operates in been faring poorly of late? Have there been any major changes in the lending landscape recently? What has been the trend in the interest rates being offered over the last six months?

Answers to such questions will give you an idea about whether you should apply for a loan right away or it’ll be wiser to wait for a few weeks.

Getting a Business Loan is a Process and Should Be Treated as Such

Many loan applicants think that lenders are prone to making arbitrary decisions. While true in rare scenarios, this usually isn’t the case. The lenders are also in the business – the business of lending money. The more businesses they lend to, the more money they end up making. So, as long as you have taken care of the ‘risk’ factors discussed in this article, you will have little to worry about when you apply for an SME loan.

Applying Left, Right & Centre – A Big No!

The biggest – and unfortunately, the most common – mistake that SMEs make is to apply for credit with no plan of action. Applying at a dozen places will not only lead to simultaneous rejections that will do your credit score no good but also handicap your business from accessing finance when you need it the most. Before applying for any business loan, you should be aware of what your options are – without making hard credit enquiries.

That is exactly what we at Commercial Finance Network, a leading whole of market broker, do for you. Working with some of the best-known and specialist lenders across the UK, we make sure that you get a loan offer that’s fair, fast and flexible.

The days of blindly accepting the first offer that comes your way are long gone. Let our team of experts curate the best business loan quotes for you. Call us on 03303 112 646 or contact us to speak with one of our Business Loan Specialists today!