Small Business Loan
A business loan or investment can provide a solid financial base for your growth plans. The first step is to know how much money you need and the options you have to raise it. Here’s a step by step guide. 

Step 1: Understand your financial needs 

Once you have created a business plan with achievable goals you can set a realistic budget. To give investors or lenders confidence your budget must include accurate financial projections. It’s best to work with a finance professional to make sure your information is properly presented and accurate. 
You should show your expected short term cashflow for each month with at least quarterly figures for the longer term. You’ll need contingency plans to show how you’ll manage if sales are lower or costs higher than expected. Also include capital costs such as equipment purchase. 
You must show how you’ll pay for the cost of finance or deliver the returns investors expect. If your business is seasonal you’ll ideally have several years’ trading figures to show your predictions are realistic. 
This information will help you to arrange your financing in advance. You won’t have to wait until your needs are urgent. For example, you could arrange a bank loan for all your needs to draw in stages. 

Step 2: Choosing the best finance options 

If you’re considering a bank loan the money you have personally invested or are prepared to invest is persuasive. This shows your commitment to the business plan. It could help to arrange an overdraft, for example, so you have enough working capital. Typically, you will pay interest on the overdrawn amount each day. However, exceeding your limit can lead to much higher charges. 
Longer-term borrowing such as loans can help you buy equipment. Interest rates are usually set above the bank base rate and will depend on the level of risk. There’s usually also an arrangement fee to set up or extend an overdraft or loan. 
If you’re considering borrowing from a bank it’s worth looking at all the options available as interest rates can vary significantly. There are also government-backed options from the British Business Bank and Funding Circle for example. You can ask your bookkeeper to review the terms and conditions with you. 
Business loans are usually for a one to 10 year fixed period. A longer-term mortgage could be suitable if you’re buying property. 
Alternatively, you might consider leasing or hire purchase, but this can cost more than a loan. You might also qualify for financial support via local or national small business grants, trade associations or charities. 

Step 3: Look for investors 

You can explore options for private investment. Your sources of finance can include your own savings and loans from family and friends. While you might arrange this informally you should record the amounts and the dates for repayment, even to yourself. 
Other private investors might be willing to provide funds in exchange for a share of your business. They will want to see a strong track record and a feasible business plan. However, your investor might already have built their own successful business so you can benefit from their experience. Investors often expect high potential returns and an exit plan so they can realise their profits within a set period. 
Crowdfunding is another option where groups of people invest small amounts each. 

Step 4: Assess your security 

Lenders and investors will want to know you can afford the capital and interest repayments. Banks usually want evidence of your business assets as security to repay the loan if something goes wrong. You’ll need to assess what your business assets are really worth. 
Normally banks are very conservative when they value assets such as business property, equipment and trade debts. This might mean you can only borrow 50% to 60% of their value. Other existing financing arrangements, such as loans or lease arrangements, are also likely to reduce the amount you can borrow. 
You might be able to offer a personal guarantee for business debts. You should be aware that you could lose your home in the worst case. If you’re a sole trader or in a standard partnership you are already personally liable for your business debts. 
Please get in touch if you would like some help to produce accurate financial information for your business plan. 
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