Business loans provide you with a lump sum of money to use for general business purposes. Whilst asset finance is used to purchase or lease equipment, vehicles, or machinery.
Business Loan or Asset Finance: How to Secure the Best Deal
Securing the best deal on your business loan or asset finance can be a game changer for your business’ growth and financial health. Whether you’re looking to expand your operations, invest in new equipment, or improve cash flow, understanding the key factors and considerations can significantly enhance your chances of success.
This guide will walk you through the key factors of a favourable deal and the actionable steps you can take to secure the best terms for your business. You’ll also find out how leveraging a finance broker can further enhance your chances of securing the best deal.
Key factors in securing the best business loan or asset finance
Securing a good deal on your business loan or asset finance can significantly impact your business’ financial health. Understanding the elements that define a favourable business finance deal is crucial before embarking on your funding journey. These metrics serve as the foundation for securing the best terms and ensuring your financial arrangements align with your business goals.
Below, we'll explore the key factors that contribute to a successful financial agreement. By familiarising yourself with these metrics, you'll be well-equipped to get the best deal on your business loan or asset finance.
Interest Rates: The cornerstone of any financial transaction affecting the cost of your business loan or asset finance. Lower rates lead to savings over time, and therefore a more attractive deal.
Deposit Requirements: The initial outlay required by the lender can vary significantly. Knowing the deposit amount helps you plan your budget and assess the loan's feasibility.
Security: Lenders often seek assurance in the form of collateral or security. This allows lenders to seize assets if you default, which may impact the terms and conditions offered.
Term Length: The duration of the loan affects its cost and your cash flow, making the right term crucial to a sustainable financial agreement.
Steps to improve your chances of securing the best business loan or asset finance
Now that we have a clear understanding of the pivotal elements defining a favourable business finance offer, let's turn our attention to the steps you can take to secure the best options for your business:
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Credit Covenant: Strengthen creditworthiness by maintaining a solid credit profile, promptly resolving outstanding issues, paying suppliers on time, and demonstrating steady revenue. Avoid bounced payments, as they indicate cash flow issues to lenders and increase perceived lending risks.
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Income-Generating Assets and Growth: Clearly explain how the asset or funds will drive business growth. It demonstrates a strategic, income-driven approach, instilling confidence in the decision-making process.
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Directors' Wealth: Personal financial standing can play a pivotal role. Directors should focus on managing their personal finances prudently and maintaining a good credit score, as this can influence loan terms.
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Trading History: A stable and positive trading history builds trust with lenders. Consistently meeting financial obligations and showcasing a history of profitability will be advantageous. Ensuring that accounts are up to date and filed on time will also be of benefit.
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Asset Value: With asset finance, the value of the asset being financed directly impacts the terms offered. Opting for assets with a good loan to value and strong resale price will increase the amount you can borrow.
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Business proposal: Creating a financial proposal that stands out to lenders can make all the difference between securing funding and facing rejection.
By proactively addressing these steps, you'll not only strengthen your finance application but also increase the likelihood of securing the most favourable financing arrangement for your business.
Common mistakes to avoid when securing a business loan or asset finance
We’ve covered the key factors that determine a favourable business finance offer, as well as the steps you can take to improve your options. Now let’s look at the common mistakes you should avoid when securing business finance.
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Overlooking alternate funding sources: Failing to explore the alternative funding sources available to you can be a mistake in obtaining the best deal for your business. Various programmes, grants and schemes are available to businesses in the UK. For example, the Growth Guarantee Scheme.
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Failing to consider future business needs: Overborrowing or under borrowing can affect your business’ growth and future. Ensuring your business loan or asset finance meets your needs now and in the future is crucial to obtaining the best deal on your business finance.
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Overlooking total costs: Focusing too much on interest rates and ignoring other costs, such as fees, penalties, and other requirements, can lead your business finance to be more expensive than anticipated.
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Rushing the application process: Quickly rushing to obtain business finance without being fully prepared can tarnish your chances of getting the best deal. By rushing the process, you leave yourself open to errors in the process, missed opportunities, or even rejected applications.
Not seeking professional advice: Skipping the opportunity to consult with a financial broker can be a critical mistake. Without expert advice and experience you may miss out on opportunities or fail to be accepted.
How a finance broker can help you get the best deal
Now that we've outlined the key factors and steps that contribute to a favourable financing deal, as well as the common mistakes often made by businesses. Let’s explore how an experienced financial broker can significantly enhance your chances of securing the best deal:
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Expertise and Recommendations: A good finance broker brings a wealth of industry knowledge to the table. They're well-versed in the intricacies of various funding options, enabling them to offer tailored advice based on your specific needs and circumstances.
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Extensive Network of Funders: A reputable broker has access to a diverse panel of lenders. This wide network ensures that your application can be paired with the most suitable funder for you, optimising the chances of securing the best terms and rates available in the market.
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Bespoke Tailoring of Applications: Finance brokers understand that each funding application is unique. They have the expertise to fine-tune your proposal, highlighting its strengths and addressing any potential concerns, increasing the likelihood of a successful outcome.
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Streamlined Process: Having an established relationship with lenders can expedite the application process. Brokers with good rapport can often secure quicker responses, ensuring a more efficient and timelier turnaround.
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Negotiating Power: Finance brokers can leverage their industry expertise and relationships with lenders to negotiate terms and rates that align with your business's financial objectives.
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Cost-Effective Solution: Many finance brokers operate on a commission basis, receiving a fee from the lenders, rather than the client. This means that you can tap into their extensive knowledge and expertise at no upfront cost.
By enlisting the services of a trusted finance broker such as James Murray Finance, you not only gain access to a wealth of financial knowledge but also a dedicated partner committed to securing the best funding solution for your business.
What is the difference between a business loan and asset finance?
Can I negotiate the terms of my business loan or asset finance?
Terms such as interest rates, loan duration, and fees can often be negotiated. Working with a finance broker can help you in this regard, as they have established relationships with lenders and can help you negotiate better deals and terms.
How can I speed up the loan approval process?
To expedite the approval process, ensure you have a clear business plan and that all your financial documents are complete and up to date. If time is a critical factor for you, working with a finance broker can help speed up the application and approval process further.
What are the risks of using collateral for a loan?
If you opt to use collateral, such as business assets or personal property, you may be able to improve your terms and chances of approval. However, if you end up defaulting on the loan, your valuable business or personal assets will be at risk.
What hidden costs should I watch out for in business finance?
Be aware of additional costs like application fees, early repayment penalties, late fees, and maintenance requirements (for asset financing). Always review the fine print and request a full cost breakdown from your lender.
How does asset value affect asset finance deals?
For asset finance, assess your assets' value, focusing on those with strong resale potential and low depreciation. High-value, well-maintained assets can improve your chances of securing a better deal.
For more information or to find out how James Murray Finance can help your business and try to secure you the best business finance deal, get in touch today.
Disclaimer: This blog post is intended for informational purposes only and does not constitute financial advice. All information is collated at time of writing and the best efforts have been made to ensure accuracy.