Borrow for the right purpose

Only borrow money for something, never just because you ‘need’ to. An overdraft to help with the ebbs and flows of working capital or a term loan to launch a new service is healthy, borrowing to mask cashflow difficulties or trading losses is not (unless it’s part of a plan).

Borrow from suppliers first

Before taking on structured debt, make sure you are making the best use of supplier credit terms - and remember, the credit limit is as important as the credit term - operating inside of credit terms (say 60 days) is irrelevant if you’ll hit the credit limit in 20 days.

Don’t be a latecomer

Apply for any borrowing well before the date that you require the facility. Short-term, immediate requirements (emergency funding?) set alarm bells ringing for lenders and invariably result in much higher costs and interest rates, not to mention limiting your options.

Approach several lenders

Applying to one lender means you can only get one ‘yes’. Applying to 10 means you could get 10. Lenders have different appetites and requirements, and these change over time - so apply to as many as possible, without triggering hard credit searches.

Go for a mix

Don’t go for a one size fits all approach. There is a wide array of funding options on the market so consider more than one - a mix of term loan, overdraft and spot financing may be the perfect blend in terms of acceptance and overall cost.

Demonstrate good credit control

Get paid on time - every time (OK, we know, easier said than done) - but good credit control is extremely easy for a lender to establish and shows good cash management with a reduced risk of financial shocks such as bad debt.

Good credit attracts more credit

If your business has no credit then consider requesting a corporate credit card from your bank account provider and start showing your ability to manage debt - you don’t need to max out the card, use it to build a profile of regular, on-time payments.

Keep your records up to date

Some lenders that we work with will request that you connect your cloud accounting software to their system for a quick analysis. This massively simplifies and shortens the application process - but your records need to be up to date.

And remember that keeping your records up to date demonstrates good management - so simply ensuring everything is reconciled just before you connect your software doesn’t cut it.

Have a business plan

Obvious one, but can’t be left out - you don’t need ‘War and Peace’ but you do need a plan that explains why you want to borrow, how much you want to borrow, how you’ll repay the money and when you’ll repay it. And make sure the financial forecasts add up. 

Get the amount right the first time

Borrow the correct amount the first time - having to approach a lender for ‘top up’ funds is not well received unless there is an exceptionally good reason (which is usually ‘we’re doing better than we thought!’).