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Business funding checklist - how do I know if I need funding?

Capitalise Feb 07, 2024

As a business owner, a common challenge you could come across is determining whether you need external funding to meet your goals. Making the right decision regarding business loans and finance is important for your company's financial health and future growth. It’s a big decision and should be considered carefully to determine what the right option is. 

We’ve provided you with a comprehensive business funding checklist to help you decide if seeking a business loan is the right choice for your business.

 

1. Put together a business plan

A solid business plan is the first step in determining if you need funding.  It should comprehensively outline your business goals, strategies, financial projections, and how the funds will be utilised. This will allow you to assess whether there is a clear plan for how a loan will benefit your business and whether you will be able to comfortably meet the loan repayments.

To make this step easier, you can use a free cash flow forecast template to visualise how the business loan repayments align with your future projections. You can also use a business pitch template to effectively structure your plan and present your business in the best possible manner to potential lenders.

 

2. Know what you need the funding for

It's essential to have a clear understanding of your specific funding needs. Different businesses will require funding for various purposes, and each purpose may be better suited to specific funding types. Understanding why you need funding and its exact use will not only help to support your funding application with lenders, it will also help you to determine which loan or lender is best suited for your business. 

Here are some examples of business needs and the types of funding that would be suitable:

Needing a new vehicle or machine: Consider asset finance to purchase or lease equipment for your business.

Purchasing more stock: Merchant cash advances (MCAs) can provide quick, short-term finance, with repayments based on a percentage of future sales. 

Expansion: A business loan could be suitable for financing expansion plans, providing a lump sum of cash and with set repayments over a specific term. 

Buying a property: If you're looking to invest in property for your business, property finance or a commercial mortgage could secure you a long-term solution. Whereas a development loan or bridging loan could give you a short-term solution. 

Working capital: If your cash flow could use a boost, a working capital loan can help you to cover daily expenses and operational costs. 

 

3. Gather your financial documents

To demonstrate your business's financial health and ability to repay a loan, you'll need to gather some supporting financial documents. These may include:

  • 6 months business bank statements 
  • Balance sheets
  • Profit and loss statements
  • Cash flow statements
  • Last set of annual filed accounts

For most types of business loans, you’ll need to have these documents readily available to apply. Make sure that you have these to hand to streamline the funding application process once you’re ready to apply. 

 

4. Check your business credit score

Your business credit score plays a crucial role in whether you can get a business loan as lenders will use it to assess your creditworthiness and likelihood of repaying the loan. Having a low business credit score could prevent you from meeting lender requirements, or could subject you to expensive interest rates.

Make sure to check your business credit score before applying for funding. If you have a good business credit score, then you’re likely in a good position to look for external finance. However if there are any discrepancies or negative factors on your credit profile, make sure that you take steps to rectify these and try to improve your business credit score

You can also update your business credit score by having it professionally reviewed using the Credit Review Service. This enables you to provide the credit bureau Experian with more up to date information so that your business credit score will represent how the company is performing today, in 96% of cases this results in an improvement. 

It's worth noting at this point that if you can't meet the criteria mentioned above, it may be wise to reconsider your funding timeline.

Take the time to build your business credit score, try and obtain assets for your business so you could opt for a secured business loan, or refine your business plan before rushing into the funding application process. Making these improvements will enhance your chances of securing favourable funding terms in the future.

 

5. Get quotes from a range of lenders

When you’re looking for funding, it's a good idea to explore multiple options. This will allow you to compare the rates, amount and terms that you’re offered. When you apply for funding with Capitalise, you can compare from a marketplace of 100+ lenders and apply to up to 4 lenders at once. With access to the full range of lending products available in the market, you could find the best option for your business. Along with support from a dedicated funding specialist, you can streamline the finding application process, applying to multiple lenders at once to save you time. 

 

6. Understand the terms and fees fully

Before finalising any funding decision, make sure that you fully understand the terms and fees associated with the loan.

Pay close attention to interest rates, repayment schedules, collateral requirements, and any hidden fees. Being well-informed will help you make an educated decision and avoid unexpected financial surprises. If you search for funding with Capitalise, you’ll work with a funding specialist who will be able to fully explain all the terms, fees and details associated with every funding offer, so that you’ll have all the information you need to make a decision. 

 

By following this business funding checklist, you can ensure that you make informed decisions and secure the most suitable finance for your business’ needs. 

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