Business finance and assurances

When you're approaching a lender or investor to help finance your business, remember, they need to feel confident that your plans will succeed and that they won't lose their money. Be open and honest and provide as much information as you can. It is in your best interest to do a true assessment of your proposal.

Equity investors, such as business angels and venture capitalists, provide cash in return for a share in your business. They make a profit by selling their stake at a later date, so they are looking for businesses that are likely to grow quickly increasing the value of their stake rapidly.

Banks base their decision to provide funding on your businesses ability to repay a loan with interest, within an agreed period of time. To minimise the chances of a loan defaulting they will look closely at the credit-worthiness of your proposal.

We look at some of the key considerations below:

A key factor lenders or investor will be examining is your track record, so a history of strong sales and profits will help. They will also want to look at your future prospects.

Look to back up any forecasts you provide with as much hard information as possible supporting the assumptions you've made. For example if you're predicting that a market will grow, driving your own sales and profits, explain why and have the information to hand.

If you need to borrow a relatively small amount, say for working capital, your current trading record may be sufficient for a lender – investors only deal in larger amounts. However, if you need finance to buy a business or you're looking to launch a new product, you will need to provide a fully costed business plan. There are tools around that can help you build a business plan, like Barclays Business Manager or Free Seminars

A Barclays Business Manager will also be able to talk you through the type of information you need to support your lending application.

If you're approaching a lender or investor for finance, they will want to be sure about your commitment to the business – such as how much you and your fellow directors or business partners have invested to date. This will show that you both have a stake in the success and something to lose if the worst happens and it fails.

A Barclays Barclays Business Manager will able to help guide you on what constitutes a stake – as it could be equipment you have already bought for example, not necessarily new money.

Evidence of your investment is important both if you're looking to borrow money to start-up, but also if you're looking to expand, especially when there is an element of risk involved. Equally, if a business requires new finance – perhaps to provide working capital at a time when sales have gone down – your lender may want to see that you are also putting more money in. So be prepared to discuss this when you apply for business finance.

If you're applying for business finance, you should ask yourself whether you can offer any support. This can include personal guarantees for bank finance to limited companies, under which an individual agrees to honour certain repayment obligations should the business fail. These personal guarantees can additionally be formally supported by your personal assets to show the real value your guarantee brings.

You could also use the business assets as security against a business loan. These can include property and sales. Many businesses borrow against the value of their outstanding invoices. There are two ways to do this: invoice discounting and factoring

Both allow you to borrow against the value of an invoice as soon as it is raised. Using an invoice finance solution means that within 24 hours ² of you issuing an approved invoice, you could be receiving up to 85% of its face value into your account. You then receive the remainder of the invoice value (after deduction of the charges for the invoice financing service) when the invoice is paid by your customer. In the case of an invoice discounting arrangement, your company retains management of the credit control process (invoicing, chasing debts, etc), whereas factoring handle this function for you.

Businesses will find it much easier to get finance if both the business and the owners have a clean financial record. This means that anyone undertaking a credit check will get only positive news. So it's vital to ensure that you manage your own finances as well as those of your business ensuring your accounts are up to date and completely accurate.

If problems do arise with repaying any debts, talk to your bank early on, rather than waiting until a default occurs. They will be able to talk you through your options and identify the best solution for you.

Ultimately, lenders and investors will base their final decisions (including the interest rates charged) on an assessment of the strength of your business and the level of risk involved. Carefully addressing all the issues mentioned above will significantly increase your chances of securing the funds that you are looking for to take your business to the next level.