There will come a point in the lifecycle of any small business where it becomes necessary to seek business credit.
One of the most common reasons for doing so is to pursue plans for expansion, but that is not the only reason why credit can be needed. Sometimes a business owner applies for a loan so that he or she can upgrade equipment, get the business website redesigned or solve short-term cash flow problems.
This is important to note, because the reasons for applying for credit will play a big part in determining how successful an application is. For the lender, it is all about evaluating how big a credit risk an applicant is. This blog will take a look at the current credit options for small businesses.
Banks and lending
The first step for many small business owners when they are looking for credit is to approach the big high street banks. The willingness of those institutions to provide credit can wax and wane, based on various factors. Some of the things that they will take into account are:
• Your individual level of risk
• The wider economic climate for small businesses
• The type of loan you are applying for
This particular period is not one where banks are keen to extend credit to small businesses. That is an issue that a lot of business owners are raising online. It is largely due to factors that are beyond their control – such as the precarious state of the economy. Costs for businesses are rising too, which further explains the reluctance. Some owners believe that Covid-19 loan defaults are also a contributing factor.
There are large banks that are lending though, if the conditions are right. Barclays, HSBC, NatWest and Lloyds are providing credit to suitable business customers. Depending on the risk level, they are prepared to offer sizeable loans of as much as £25,000-£75,000. However, for companies to be able to access credit on that scale, they must pass the lending criteria set by the big banks.
That means providing evidence that the business is on a solid financial footing, so that the risks for the bank are low. It will help your chances of getting credit from a bank like Barclays, HSBC, NatWest or Lloyds if the money is for expansion/upgrades. It will also help if your business is an existing customer, has a good credit score and assets for collateral.
Therefore, the level of risk and the type of loan are all important. What does this mean for small firms who need credit for cash flow purposes though? Simply that it will be difficult to get it from a bank right now. That means other options must be considered.
An independent brokerage
A second potential method is to go through an independent brokerage. This can often be the better choice, because such brokerages exist to locate financing for businesses. AJL Finance is one of the UK’s leading independent brokerages – and one that regularly secures business loans for SMEs.
Brokerages do not provide loans themselves – they identify sources of credit and help with applications. That can be particularly useful for business owners during periods when banks and other lenders are wary of offering credit though. A broker will assess what size of loan is affordable for your business, which will increase your odds of success.
This is especially true when it comes to types of credit that are high risk: for example, invoice financing and unsecured business loans. Having a broker negotiate these will strengthen your hand. Furthermore, they will have contacts beyond banks – including alternative finance companies and digital lenders. That means a bank saying no is not the end of your chances.
The application process
The process of applying for credit through AJL Finance consists of five simple steps:
• Fill out an online form with all documents requested
• Discuss your application with a case manager
• Submit any further documents needed to support it
• Receive your decision, usually inside two days
• Access your financing, within a further two days
The success rate for small businesses makes it a useful option.
Banks are not eager to help small businesses with credit at the moment, but getting it is not impossible.
