What will I need to do to borrow money for my business?
What to look out for
- Red Can you afford to repay the debt from your day-to-day operations
- Amber Lenders will review your past credit history and profile
- Green Understanding your requirements will improve the chances of securing credit
Some of the world’s most successful businesses rely on credit and borrow money to capitalise on an opportunity. What will lenders want to you know about you?
What does the word credit mean?
When used in a business context, credit is the process of (i) one party making funds available to a business with the expectation that these funds are repaid in full and with some form of interest payments being the profit for taking the risk and (b) extending payment terms for goods or services provided, allowing the business to benefit from the use of the good or service while repaying the cost of this over a period of time.
Credit is an ancient form of business process and the word is derived from the Latin word ‘believe’, as in the lender needs to believe that you will give them their money back!
Is it normal for businesses to borrow money?
Many of the most successful business in the world rely on some form of credit to help increase their capacity and opportunity.
What will I need to do to obtain credit for my business?
Obtaining credit usually a requires a mixture of several elements.
Will you repay the credit?
Firstly, the lender needs to satisfy themselves that the borrower will repay the credit extended to them, lenders do this by reviewing your past credit history and accessing your credit profile. This shows if you have had a good history of repaying credit.
Do you have enough cash?
Secondly, the lender will want to ensure that you currently have enough spare cash in the business to repay the credit. They refer to this as ‘affordability’, or whether you can afford to repay the debt from your day-to-day operations.
What do you want the money for?
Thirdly, the lender may want to know what it is that you want the credit for. Understanding your requirements will help them judge whether it seems like a sound decision for them to extend this credit to you.
Find your business
Business Loans Links
- What is peer-to-peer lending
- Commercial loans explained
- Using commercial loans
- P2P lending advantages
- What is a term loan?
- Why use cash flow loans
- Cash flow finance explained
- Why would you use credit?
- Guide to Government loans
- Costs of unsecured loans
- Guide to unsecured loans
- Small business loan types
- Why use small business loans