Going out on your own in business can be a liberating experience — but it can mean a great deal of new responsibilities. Getting finance can also be a little trickier too, especially if you’ve just started out. So here are some tips to make applying for finance easier.
If you’re a sole trader, getting credit can be a bit more difficult than, say, if you work for someone else or you own a company. That’s because financial institutions usually consider sole operations as higher risk, especially if your venture is new and you don’t have a strong business track record yet.
Of course, this doesn’t mean you won’t get finance. But you will need to be well prepared before you start looking to borrow, and make sure you’re able to show that you can meet your repayments.
Here are three tips to help make applying for finance easier.
1. Do your homework
Before you start looking for finance, make sure you do your homework thoroughly. For starters, you’ll need to be able to state clearly what you are borrowing money for, and exactly how much you need.
Financial institutions generally ask sole traders to provide the last two years’ worth of tax returns and income assessments as proof of income. They may also want to see your business plan, financial forecasts and evidence of your cash flow, especially if you’re starting out. So have this paperwork ready before you start looking for finance — and enlist the help of your accountant to make sure your figures are accurate.
Then, shop around. You might find other financial institutions have a better interest rate than your bank. Or if you’re buying a work vehicle, think about getting finance through a dealership, who can offer you a variety of options that could work better for your business. They may also be able to tailor your finance to suit your personal situation, and will be able to help you sort it out on the spot so you don’t have to waste valuable time.
2. Think about collateral
Banks and finance companies may also want some collateral to secure your contract. If you’re a home owner, you may consider that as the collateral, or you could use business equipment.
Some lenders will allow you to use your new vehicle as security against your credit, which is worth investigating as this means you do not have to tie up other assets. There may also be tax benefits for certain types of finance, which your accountant will be able to advise you on.
3. Manage your risks
All borrowing involves some risk. For the financial institution, there’s the risk that you won’t pay on time, or not at all, or that they’ll have to spend time and money chasing you for your payment. For you, there’s the risk that if you get sick or injured, you won’t be able to make your repayments. This could mean losing your collateral that you’ve put up to secure your facility, or going bankrupt.
So it makes good sense to use insurance to protect yourself against this kind of risk. For example, you can take out loan protection cover for a small payment each week, which covers your repayments if you get sick or injured. It’s just one less thing to worry about if the worst happens.
You should always consult your accountant or financial advisor too, as they will be able to help you figure out the best finance products to meet your needs, and how much you could, or should, borrow.
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