How to Get Approved For a Start Up Loan

When you’re starting out in business, finding the funding you need is likely to be high up on your list of considerations. There are now plenty of options you can explore when looking for the right funding for your business. These include a number of relative newcomers such as crowdfunding, peer to peer lending, and a government backed Start Up Loan.

As a delivery partner for the government’s Start Up Loan scheme, BizBritain receives hundreds of applications from new business owners every month. In this article I’m going to share the key things we look for when assessing applicants and the areas you should focus on. If put into practice, these can greatly increase your chances of being successful in your application.

Ensure you have the right skills & basic business knowledge needed to run a business

When you apply for a Start Up Loan, you’ll need to be able to demonstrate that you have a solid understanding of how a business works. It’s important that you have a grasp of key areas like sales, marketing and finance. We don’t expect you to be an expert, but you need to demonstrate that you have researched the basics before you apply.

As a minimum we would need you to know about things like profit and loss reports, balance sheets, cash flow and how to go about marketing and selling your product or service. You should also understand the technicalities around the type of business and what is appropriate for your situation. For example, whether you would be best served operating as a sole trader, a partnership or a limited company.

Get to grips with your business model.

This might sound obvious, but it’s amazing how often people don’t actually understand how their business will work when they are challenged about it. I’m not just talking about having a vague idea around what you want to do; I’m talking about understanding the complete process behind how your business is going to make money. You need to have a solid idea of how you are going to sell your product or service to your customers in sufficient volumes and at a low enough cost to make a profit on an ongoing basis. All while covering your own living costs and staying cash-flow positive throughout.

Simply saying that you quite fancy setting up your own barber shop isn’t going to cut it (excuse the pun!). You need to understand every aspect of how you are going to make it viable. For example in the case of a barber, you need to think about a number of things including: How much you’re going to charge per haircut; how many haircuts you can realistically perform each day; how you’re going to find and convert enough people into paying customers in the face of local competition; how much money that volume would equate to in daily sales; the combined cost of all your overheads, the timings around when you are going to have to pay for things and so on.

It’s about ‘you’ as well as your business plan.

You might be thinking that the most important part of your loan application is the business plan. However you may be surprised to know that how you stack up as an ‘investable person is just as important. Business plans are easy to change, whereas changing the people behind them is much harder. Any lender will need to be confident that you are reliable and can be trusted to pay back the money before they consider issuing with you a loan.

At BizBritain, when weighing up the ‘person’ aspect of an application, we look to gauge things like your level of experience, your depth of understanding of your business model, how reliable you’ve been at paying back other loans in the past, and a number of other factors.

It doesn’t matter how good your business plan is; if you have a long history of failing to repay your debts or you choose to lie about things on your application, you have little chance of being taken seriously. If you do have adverse items on your credit report, you will always be looked on more favourably by a lender if you are open and honest about it and you can explain how they came to pass. We find out everything about our applicants either way, because we run thorough background checks (including full credit checks) on everyone who applies for a Start Up Loan.

Have the right evidence ready.

It’s all well and good knowing what you are planning to do with the funds should you be approved for a loan, however you will need to provide your lender with all the documentation to back it up before they will consider giving you the cash.

Aside from the obvious things like proof of ID and proof of address, you will also need to provide evidence of anything that is material to your application. We regularly receive applications from people who have a well thought out plan of what they intend to do with the funds if approved, but lack any kind of paperwork to back up what they are claiming. For example if you have included the purchase of a specific expensive piece of equipment in your cash-flow forecast, you would need to evidence the price and that you are actually intending to buy it by providing copies of written communications with the supplier.

Don’t be tempted to make up random figures that you can’t back up, as they will only get picked apart during the process.

Originally posted on Business Zone