New research from(1) Fleximize, an alternative SME lender, amongst 129 business owners reveals that just one in ten (10%) believe the financial health of their companies is ‘poor’ or ‘very poor’. Just over one in three (35%) describe it as ‘good’, and 4% say it is ‘excellent’.
This level of optimism helps explain why 49% expect their company’s monthly revenue to increase over the next 12 months, compared to just 16% who anticipate it to fall.
However, the findings reveal that 23% of business owners are looking to secure more funding over the next year than they needed during the past 12 months, and only 8% think they will need less credit.
Max Chmyshuk, Founder and Managing Partner at Fleximize, said: “Banks are turning down around one in five credit applications from small businesses, and just under one in ten from medium-sized enterprises(2), and this is fuelling demand for alternative sources of finance.
Fleximize offers a choice of flexible loans and revenue-based financing to small and medium-sized businesses where repayments are tied to a client’s revenue flow – paying back more in good months and less when income drops. In the first half of this year, the amount it lent was over 200% higher than in the same period in 2014.
Fleximize has produced the following tips on how SMEs can increase their chances of being accepted for credit.
Tip 1: Know your business inside out
From a lender’s point of view, it’s a massive alarm bell when a business owner or manager stumbles on straightforward questions about their business. It’s like trying to sell someone a holiday without telling them which hotel (or even country) they would be going to and how they are getting there. Your chances to close a successful sale would be quite slim.
To convince someone to invest in your business for a period of time is even a harder task than selling something they could use immediately. You should feel comfortable talking about all aspects of your business, including its past performance, present challenges, and plans for the future, ideally in an engaging manner. Please come prepared!
Tip 2: Keep your records up to date
We know there’s never enough hours in the day for small business owners to complete their 101 tasks, but when a lender is assessing your business they will expect to receive your latest records, like bank statements, statutory and management accounts, proof of revenues, contracts, etc. Therefore it’s essential that the latest copies of these can be provided quickly and in a decipherable format.
The best advice is to keep all your records current and readily available. That way you do not have to scramble to compile everything at the last moment. Set yourself strict deadlines on reporting, either weekly or monthly and stick to them – there’s nothing worse than trying to consolidate figures that are not fresh in your mind. If this sounds like hard work, hire a professional accountant. They tend to pay their cost many times over, particularly when you are looking to raise cash.
Tip 3: Have a plan and know the purpose
One of the most common purposes we hear for a Business loan is to support ‘cash flow’. Well, this sounds reasonable, as long as you know why your current cash flow is short and cannot support your business. Is this because you’ve had to pay out for some extra stock to get you through an increased sales period, or to pay overheads while you wait for a third party to settle a balance? Knowing and being able to present the detail behind the purpose of the loan is important to any lender, as it would be to anyone parting with their cash. We recommend that you have a clear plan of how the money will be spent and how this will support your growth plans.
Tip 4: Communicate honestly and openly
This is as important as ensuring all records are in order and up to date as well as knowing the amount and purpose of the financing you are seeking. Once you have selected your lender and submitted your application, treat ongoing communication with them as top priority. Be honest. Always assume the person on the other end is trained to look for any inconsistencies in your stories and numbers, because this is true. Respond in a timely manner and manage expectations of any materials you are preparing. The discipline with which you handle your application process is often indicative of your repayment discipline, so make a good impression. Remember, no lender is likely to lend to a business where there are still question marks floating around.
Tip 5: Don’t over commit yourself
We find that many businesses tend to over commit themselves financially very early on. This may cause problems later down the line when trying to obtain further credit. Your chances of raising money is not great when you’ve over-borrowed early on and cannot keep up with the payments or if you have given away all the security in your business. Our advice is to pace yourself and align your credit commitments with the long term goals of your business. Every time you take out finance think about the long term impact of the terms you are agreeing to on your company and its assets, and ensure it works with the future plans you have for developing and growing your business.
Notes to editors
- 129 business owners were interviewed by Consumer Intelligence in October 2015.
- Fleximize analysis of British Bankers Association data
- Fleximize analysis of altfi.com data
For further information contact us at firstname.lastname@example.org.