There were stunning figures released in a new survey about business start-ups recently.
Data from small business lender iwoca showed that 93 new businesses were created every hour.
Despite economic headwinds, rising inflation and rocketing energy costs, the number jumped by 18 per cent year on year.
Data from Companies House show over 402,000 businesses were also registered between January and June 2022.
However, despite this surge in new businesses and demand for funding, many still struggle to secure the finance they need.
Lenders want security for loans
Commercial lenders want to know their money will be secure when they lend to a new business.
They want to be sure that the borrower can repay, or have their assets liquidated should they default.
Securing financing for a start-up is especially challenging, as it is inherently riskier than financing an existing business.
There are many ways of raising finance, including alternative methods, outside of traditional loans, such as angel investors, peer-to-peer platforms, crowdfunding or credit unions.
How can businesses improve their chances?
Measures that might persuade lenders to provide finance include:
- Having a strong, concise and clear business plan – Show the potential lender you have done your research, know your market and have the expertise and systems in place to execute your plan.
- Improving credit rating – Run your personal and commercial credit score before applying for a loan. If it is low, spend a couple of months working to improve it.
- Finding the right type of loan – Make sure the funding fits your needs, like an instalment loan, short-term loan or simpler line of credit.
- Provide collateral for the loan – Some lenders may ask for a guarantee before lending to you, such as business premises if owned by you, or assets such as plant machinery, which may make a lender willing to offer a secured loan. Some lenders may even ask you to put personal assets forward, such as your home.
Before trying to secure finance from a bank, it’s a smart move to speak to an accountant.
Rejected? Then start again
Find out why your application was rejected. Get as many specifics as possible for the rejection, so an updated plan can be presented.
Ask for recommendations from other potential lenders who might specialise in your field and then re-apply.
However, be careful not to make too many applications, as this could affect your credit score.