For businesses with limited knowledge of SME financing options, identifying a suitable lender, a good deal in terms of rates/fees and repayment amounts is not easy. Especially with such an array of funding types and providers available within the market.
Due to this, professional input and expertise in the form of finance brokers are extremely beneficial to SME business owners when sourcing finance. In short,
- They can save you time and money by carrying out all the leg work
- They have access to a range of lenders and know which the best options are based on your requirements
- They can identify help you the best SME loans for your business
Find out more on the advantages to using a finance broker
Lenders will consider a variety of things when assessing an organisation’s status. Factors they consider when determining a client’s credit worthiness are;
- How long a company has been established
- Company financial accountants – current assets, income and liabilities
- Company financial statements – current cash reserves and daily expenditure
- Existing credit agreements (if any)
- Company directors/owners/partners profiles
What types of SME funding are available?
- Acquisition and Deposit Funding - Find out more
- Asset Finance - Find out more
- Corporation Tax Loans - Find out more
- Debtors Funding Loans - Find out more
- Income Tax Loans - Find out more
- Invoice Finance - Find out more
- Partner Buy In Buy Out Funding - Find out more
- Refurbishment Loans - Find out more
- VAT Funding Loans - Find out more
- Working Capital and Cash Flow Finance - Find out more
Unsecured Loans VS Secured Loans?
Unsecured loans do not use any tangible assets, either personal or business, as collateral when applying for SME finance while secured loans do.
When using unsecured finance, lenders look at your personal credit rating, business bank accounts and business financial reports, this is known as an affordability assessment. When using secured finance, loans are secured against company assets, if you are a sole trader these assets will also include personal assets.
SME Loan Affordability
How decisions are made regarding your suitability for a SME loan varies between lenders, based upon their own affordability criteria.
These criteria are linked to Loan Affordability assessments and include
- Finance Facility Type
- Funding Amount
- Total Facility Cost
- Financial status
- Applicant(s) personal credit history
- Existing loan agreements
Applicant(s) vulnerability, regarding their mental capacity to understand the obligations and any risks involved in taking out a business loan
Following responsible lending guidelines, a lender would not approve your application if you are deemed at risk of being unable to afford the loan repayments.
Sourcing the right SME Funding Solution
With such a wide range of lenders available, all with their own predefined lending criteria, many SMEs find it difficult and time consuming to source the right funding solution for their needs, however more importantly, they find it difficult to select the right lender for their company status.
When applying for a loan you may not be accepted by a particular lender, however this does not mean that no other lenders will accept your loan application. A common mistake is to send out multiple applications to numerous lenders in the hope that one is accepted.
Carrying out multiple finance applications in a short period of time can have a negative effect on your credit score.
The correct course of action is to apply with lenders who are more likely to accept your application, and this is where a good finance brokers expertise comes into play. A broker can determine possible lending amounts, the best time to apply and most importantly which lenders to approach.
Pros of SME Finance
Quick applications and decisions (in most cases)
RLA Capital give decisions on SME loans within 48 hours of application, with funding being released within 24 hours of all documents being signed by you after a decision. Secured business loans will take longer due to the increased legal documentation that needs to be completed.
Improved cashflow and spending power
The use of SME Finance can be highly beneficial and effective way to increase cashflow and spending power. For more information on SME Finance for UK business, do not hesitate in contacting us to discuss your loan requirements.
SME Lending Trends
SME lending has shown positive trends since 2013 with increases in loan approvals year on year. It is worth noting that many SMEs are accessing alternative finance, such as P2P (peer to peer) lenders as opposed traditional banks loans.
SMEs have found it increasingly difficult to obtain traditional bank finance for a number of reasons.
In comparison to large corporations, many SMEs do not have long trading histories or detailed financial accounts, with many filling micro accounts. This makes it difficult for banks to assess affordability. Traditional bank loan approvals have actually declined since 2017 [source: https://www.bankofengland.co.uk/statistics/visual-summaries/businesses-finance-raised]
On the other hand there has been a marked increase in approvals coming from alternative P2P finance providers which in 2018 exceeded £3 billion [source: https://www.p2pfa.org.uk/uk-peer-to-peer-lending-data-reflects-continued-maturity-of-the-sector-during-2018/]