How to Prepare Your Business for Finance Before You Need It

Most business owners start looking at finance when something has already happened.

They have found a new premises. A piece of equipment needs replacing. They have won a large contract. They want to hire. Cash flow has tightened. A supplier needs paying. An opportunity has appeared and there is suddenly a deadline attached to it.

That is understandable.

It is also often the worst time to discover what funding your business can realistically access.

If you know that your business is likely to need capital in the next six to twelve months, whether that is £30,000, £100,000 or £500,000, you can do a lot before an application ever reaches a lender.

You can understand how much funding may be available, which type of finance is likely to suit what you are trying to achieve, what information lenders will want to see and, most importantly, what you could improve now if your business is not quite ready.

That is what funding readiness is really about.

It is not about taking on debt before you need it.

It is about knowing your options before you need them.

If you want to understand your current position, LoanLogic's Funding Readiness Review is designed to help you do exactly that.

The three questions to answer before you need funding

Before approaching lenders, every business owner should ideally understand three things.

1. How much funding could my business realistically access?

There is a big difference between how much you would like to borrow and how much the lending market is likely to support.

Lenders will look at things such as turnover, profitability, cash flow, trading history, existing borrowing, the directors behind the business and what the money is going to be used for.

The answer also changes depending on the product.

A business might only support a certain level of unsecured borrowing but have significantly more capacity if the funding is secured against machinery, invoices or commercial property.

Understanding this early helps you plan properly.

If your expansion requires £200,000 but the business currently supports closer to £100,000, you want to know that before signing a lease, ordering equipment or committing to a project.

For a deeper look at the information lenders assess, read our guide to what lenders look for when assessing a business finance application.

2. What type of funding actually suits what I am trying to do?

A business loan is only one option.

There are many different forms of business finance, and the right structure depends on what you are trying to achieve.

If you are buying machinery, vehicles or equipment, asset finance may make more sense than using an unsecured loan.

If you want to understand how this works in more detail, our guide to asset finance for Dorset businesses explains the main structures and where they fit.

If you are growing quickly but customers pay on 30, 60 or 90-day terms, invoice finance may solve the underlying cash flow problem better than taking a fixed-term loan. You can also read our invoice finance guide for Bournemouth and Dorset businesses.

If you have recurring short-term working capital requirements, a revolving credit facility may be more appropriate.

If your business has predictable recurring or online revenue, revenue-based finance may also be worth exploring.

If you own valuable equipment outright, asset refinance could release capital already sitting within the business without selling the equipment.

The question should not simply be:

"Can I get a loan?"

It should be:

"What is the most appropriate way to fund what I am trying to do?"

That distinction matters.

3. If I am not ready today, what can I change?

This is potentially the most useful question of all.

A business can be perfectly viable but not currently positioned for the amount or type of funding the owner wants.

Maybe the latest accounts are old.

Maybe profitability has improved substantially since the last year-end but there are no management accounts showing it yet.

Maybe there is too much existing short-term borrowing.

Maybe several missed payments are appearing on the bank statements.

Maybe the business has recently grown but does not yet have enough trading history at its new level.

Maybe there is something on the business or director credit file that needs addressing.

Maybe the structure of the proposed project itself needs changing.

If you discover that three weeks before the money is required, there may be very little time to do anything about it.

If you discover it six months beforehand, the situation can be very different.

That is why a Funding Readiness Review can be valuable even when you have no intention of borrowing immediately.

What lenders actually look at

Different lenders have different criteria, but most are ultimately trying to establish the same thing:

Can this business comfortably repay the finance being requested?

To answer that, they build a picture from several different pieces of information.

Trading history

How long has the business been operating?

Some lenders are comfortable with relatively young businesses. Others want two or more years of trading history.

A longer track record usually gives lenders more evidence to assess, but newer businesses are not automatically excluded from funding.

It simply affects which lenders and products are realistic.

Turnover

Revenue matters because it gives lenders an indication of the scale of the business and the level of borrowing it might reasonably support.

But turnover on its own does not determine borrowing capacity.

A £2 million turnover company producing very little cash may be a weaker lending proposition than a £750,000 company with strong margins and consistent profitability.

Profitability and cash flow

A lender needs to see where repayments are going to come from.

That means understanding the underlying profitability of the business and, just as importantly, the actual movement of money through the bank account.

A profitable business can still experience cash flow problems, particularly when it is growing.

That is why lenders often look at both the accounts and recent bank statements rather than relying on one document alone.

Business bank statements

Bank statements are one of the most important sources of information in a finance application.

They show what is happening now rather than what happened at the last financial year-end.

Lenders may look at:

• consistency of revenue
• average balances
• existing finance repayments
• returned payments
• overdraft utilisation
• tax payments
• large or unexplained transactions
• whether the account repeatedly falls under pressure

One difficult month is not necessarily a problem.

Patterns matter much more.

Existing borrowing

Existing finance does not automatically prevent a business from borrowing more.

But lenders need to understand what commitments are already being serviced.

A business carrying several loans, merchant cash advances or short-term facilities may have less capacity for additional borrowing even if turnover is strong.

Sometimes the answer is not another facility.

It may be restructuring or refinancing some of the existing debt.

Credit position

Both business and director credit can influence a decision, particularly for smaller limited companies.

County Court Judgments, defaults, missed payments and other adverse credit do not necessarily make a business unfundable.

They do, however, change which lenders are appropriate.

This is one reason making repeated applications without understanding lender criteria can be counterproductive.

It is better to understand the position first and approach the lenders most likely to consider it.

Directors and shareholders

Lenders will normally want to understand who owns and controls the company.

That can include:

• number of directors
• shareholding percentages
• significant shareholders
• director experience
• other connected businesses
• whether directors are homeowners

Homeownership is not required for all forms of commercial finance, but it can affect lender appetite and the amount available with some products.

For larger transactions, the financial strength and experience of the management team can become increasingly important.

What the money is for

The purpose of the funding matters.

A lender will generally be more comfortable when there is a clear commercial reason for borrowing.

For example:

• buying equipment
• funding a fit-out
• hiring staff to support growth
• purchasing stock
• opening another location
• funding delivery of a contract
• acquiring another business
• bridging customer payment terms
• refinancing more expensive debt

The clearer the purpose, cost and expected benefit to the business, the easier the request is to understand.

"Working capital" may be technically correct, but explaining exactly what that working capital will enable the business to do creates a much stronger picture.

For example, an engineering or manufacturing company that wins a larger-than-usual contract may need to pay for materials, labour and production weeks or months before its customer pays. Our guide to funding growth for Poole's marine, engineering and manufacturing businesses shows how planning the funding before bidding for the work can make a significant difference.

Why management accounts can make such a difference

Filed accounts are historical.

If your year-end was nine months ago, they may describe a very different business from the one you are running today.

That becomes particularly important when the business is growing.

You may have increased turnover, improved margins, won new contracts or invested heavily since the last set of accounts was filed.

Without current financial information, a lender may not be able to see that.

This is where management accounts become valuable.

As funding requests become larger, particularly once businesses start looking for £50,000 or more, up-to-date management information can become increasingly important depending on the lender, product, complexity of the transaction and age of the filed accounts.

Good management accounts can help show:

• year-to-date turnover
• current profitability
• gross margins
• cost movements
• balance sheet position
• debt levels
• recent growth

They can also help explain why the filed accounts do not tell the whole story.

This is one of the reasons LoanLogic likes to work alongside accountants and bookkeepers.

The broker understands what the lending market needs to see.

The accountant or bookkeeper understands the underlying financial position of the client.

Working together can produce a much clearer funding application.

Keep your filed accounts up to date

It sounds basic, but it matters.

UK limited companies have statutory obligations around preparing and filing their annual accounts, and overdue accounts can also create unnecessary problems when you are seeking finance.

If your accounts are due soon and you know you are likely to seek finance, speak to your accountant before the funding requirement becomes urgent.

The lender will want to understand the most current position possible.

The timing matters more than most business owners realise

There is nothing wrong with arranging finance quickly when an urgent requirement appears.

Sometimes that is unavoidable.

But urgency reduces your options.

If funding is required within days, there may not be time to produce management accounts, repair a credit issue, restructure existing debt, collect missing documentation or wait for a lender with a slower underwriting process.

The decision becomes:

"What can we get done in time?"

Planning earlier changes the conversation to:

"What is the best structure available to this business?"

That is a much better position to be in.

If you are thinking about a significant investment in the next six to twelve months, the funding conversation can start long before an application does.

Six months before you need finance

If you know something is coming, this is an ideal point to assess your position.

Start by understanding approximately how much the project will cost.

Then look at how much you are prepared to contribute from the business.

After that, establish what funding might realistically be available for the balance.

Check that your filed accounts are up to date.

Review your recent bank statements.

Speak to your accountant or bookkeeper about whether current management accounts would improve the picture.

Review existing borrowing and understand what repayments are already leaving the business each month.

Check the business and director credit position.

Then start thinking about funding structure rather than simply loan amount.

You might discover that part of the project belongs on asset finance and another part should be funded through a business loan.

You might realise invoice finance could release enough working capital that the original borrowing requirement becomes much smaller.

You may find that equipment already owned by the business could be refinanced.

Or you might discover that waiting three months and improving one part of the financial position could materially improve the funding available.

That information gives you choices.

What if you do not actually need funding yet?

Good.

That is often the best time to look.

A Funding Readiness Review is not an application for finance and it does not mean you have decided to borrow.

It is simply a way of understanding your current position.

At LoanLogic, the Funding Readiness Review is designed to answer three questions:

How much funding could your business realistically access?

Not simply how much you want to borrow, but what the current lending market is realistically likely to support.

Which funding product or structure is most likely to suit what you want to achieve?

That might be a business loan, asset finance, invoice finance, a revolving facility, revenue-based finance, asset refinance or a combination of different products.

If you are not ready today, what could you change to improve your options in the future?

A perfectly valid outcome might be:

Do nothing for six months.

Improve the management information.

Reduce a particular facility.

Build more trading history.

Resolve something on the credit file.

Increase the cash contribution to the project.

Then revisit the market from a stronger position.

That can be significantly more valuable than applying immediately simply because funding is available.

Working with your accountant or bookkeeper

Your accountant or bookkeeper should be part of the funding conversation, particularly where the requirement is substantial.

They can help make sure the financial information accurately reflects what is happening inside the business.

They may also be able to produce the management accounts, forecasts or additional information a lender requires.

The strongest applications are often the ones where the business owner, accountant and broker are working from the same information and understand exactly what is being proposed.

It saves time.

It reduces misunderstandings.

And it gives the lender a much clearer picture of the business.

Frequently asked questions

How early should I start looking at business finance?

If you know you are likely to need significant capital within the next six to twelve months, it is worth understanding your options now.

You do not need to apply immediately.

The point is to identify anything that could affect your borrowing capacity while there is still time to do something about it.

What documents will I need?

This depends on the product and lender, but common requirements include:

• recent business bank statements
• filed accounts
• details of existing borrowing
• director and shareholder information
• identification
• details of the funding requirement

For larger or more complex applications, management accounts, forecasts, contracts, purchase orders or supplier quotations may also be required.

Do I need management accounts?

Not for every facility.

However, they become increasingly useful where the funding requirement is larger, the filed accounts are relatively old or the business has changed significantly since its last year-end.

Does bad credit mean I cannot get business finance?

Not necessarily.

Commercial lenders have different levels of appetite for adverse credit.

The important thing is understanding the issue before approaching the market so the application can be directed towards appropriate lenders.

Does being a homeowner matter?

Sometimes.

Some lenders and products take director homeowner status into account, particularly for unsecured lending.

Others do not require it.

It is one part of the overall funding picture rather than a universal requirement.

What if I don't know which type of finance I need?

That is normal.

You do not need to diagnose the product before speaking to a broker.

Start with what the business is trying to achieve, how much it is likely to cost and when the money will be required.

The funding structure should follow from that.

Start before the deadline exists

Funding should support the plan.

It should not become the plan.

If you already know that your business wants to buy equipment, recruit, move premises, open another location, take on a larger contract or make another significant investment over the coming year, understanding your funding position now gives you much more control over what happens next.

LoanLogic works with more than 70 specialist lenders across the commercial finance market and is a member of the National Association of Commercial Finance Brokers (NACFB).

With more than 17 years of finance experience, LoanLogic helps established UK businesses understand:

• how much funding they could realistically access
• which structures are likely to suit what they want to achieve
• what they can do to improve their position before finance is urgently required

Find out where your business stands

You do not have to wait until you need the money.

Start your free Funding Readiness Review and understand what your options look like before you need to use them.