There’s no doubt that we’re living in uncertain political and economic times, against the backdrop of Brexit and concerns over the UK’s future standing as an influential global force.
This is thought to be triggering a pronounced decline in business investment nationwide, with Britain’s major banks reporting that entrepreneurs are delaying key financial and growth decisions in order to mitigate their risk.
However, there has arguably never been a better time for companies to invest in outdoor advertising in the UK, particularly as the Millennial demographic comes of age and becomes increasingly wary of digital marketing channels. At the same time, an estimated 84% of this demographic pay close attention to outdoor advertising, creating a vast and engaged audience for firms to target.
With this in mind, here’s some advice on how to secure a business loan and capitalise on this growing trend in the current climate.
How to Small Business Loans Work?
In simple terms, small business loans are defined as a type of commercial borrowing that has been specifically designed for startup businesses and SMEs rather than individuals.
With this type of lending, your business can borrow between £1,000 and £3 million on average, whilst you’ll be required to repay this amount at a fixed and predetermined rate of interest over anywhere between one month and 15 years.
Business loans typically fall into two categories too, and we’ve broken these down in finer detail below:
Unsecured Business Loans
Unsecured borrowing has arguably become the most popular option for firms post the last global recession, as it enables companies to access funding without having to risk any of their commercial assets as security.
However, unsecured borrowing typically incurs are higher rate of interest, which will increase the total amount that you have to repay and the value of your monthly installments.
In this respect, you need to strike a balance between protecting your company assets and creating monthly repayments that you can afford to meet, whilst measuring this against the amount that you need to borrow in the first place.
Secured Business Loans
As you can probably guess, secured lending sits at the other end of the spectrum and enables businesses to access funds by using their tangible company assets as security.
These assets will vary depending on the nature of your business, but can include any fixed and valuable security that’s under your direct ownership. Under this type of arrangement, the secured assets can be seized by the lender if your business defaults on its repayments, and this is a major consideration in the current climate.
However, you will secure a more competitive rate of interest through this type of loan, as lenders are able to offset their risk by including collateral as part of the agreement.
You’ll need to ensure that potential lenders are regulated to serve small businesses too, as some may only have accreditation to meet the borrowing demands of sole traders.
These companies are not legally permitted to lend to limited companies in most instances, and failing to check this can cause huge issues going forward for your venture.
Do I Need a Small Business Loan and are There Other Funding Options Available?
Ultimately, there are numerous instances in which you may want to consider securing a small business loan, whether you want to purchase stock in volume or scale your venture by taking on new members of staff.
You may even want to pay off debts or create a source of working capital, but regardless of your motivation you need to give this careful consideration in order to determine whether or not a loan represents the best value option.
If you want the cash to drive growth and invest in an outdoor advertising campaign, for example, a small business loan represents a genuinely viable option in most instances.
It’s certainly suitable if you’re planning on using traditional billboards as part of your campaign, as these are generally cheaper to source over the course of an average two-week booking whilst they also offer greater exposure to brands who aren’t required to share advertising space with other companies.
This typically translates into a superior ROI for advertisers, especially when you consider that digital billboards often feature up to six different advertisers and allow each one 10 seconds of exposure per minute.
In instances where you’re able to secure a more significant return on your investment within a relatively short space of time, you can repay your loan quickly whilst minimising the accumulation of interest.
If you’ve also outlined a clear outdoor advertising strategy that determines precisely how traffic and footfall will be converted into either off or online sales, small business loans become increasingly viable and capable of providing a significantly superior value proposition.
Conversely, securing a loan to boost your levels of working and operational capital may not be the best idea, and there are two key reasons for this. Firstly, this is akin to securing a payday loan in order to fund living costs, as it can create a recurring cycle of debt that ultimately costs more to repay over time.
Secondly, funding options such as invoice financing offer a far better option in this instance, as this enables you to sell your accounts receivable and secure capital against your completed orders.
This provides an instant and secure source of funding that can offset 60 or 90-day invoice terms, whilst the value of the loan can be easily repaid once your clients have settled their debts.
Another key consideration is the amount of cash that you’re looking for, as you may be able to use methods such as crowdfunding in instances where you only need limited funds.
Conversely, large cash sums may incur significant interest charges, which may make it difficult to repay your debt over an extended period of time unless you’re able to secure a viable or timely return.
Even if it appears that a small business loan does represent the best and most obvious financing option, it’s important to consider all of the potential channels at your disposal. In addition to appraising your circumstances, this ensures that you’re able to identify the funding option that offers the best value for your hard-earned cash.
Remember, a wealth of different borrowing options has emerged in the wake of the great recession, with alternative methods such as equity crowdfunding and peer-to-peer lending platforms providing flexibility to small businesses across the globe.
How Can I Improve my Eligibility for a Small Business Loan?
Regardless of the reason that has prompted you to seek out a small business loan, once you’ve arrived at this decision the chances are that you’ll have given it a considerable amount of forethought.
It’s still important that you take steps to improve your eligibility for a small business loan, however, so here are a few ideas to help you achieve your objective:
Develop a Strong and Concise Business Plan
Let’s start with the basics; as you won’t be able to qualify for a loan if you cannot articulate the reason that you require funding and explain why it represents a sound investment for lenders.
We spoke earlier about clearly understanding your motivation for making a small business loan application, whilst your ability to communicate this in a concise and compelling manner to lenders is absolutely imperative.
This should be a clear focus of your business plan, which must be detail-oriented and lay out the precise purpose of the loan.
It must also demonstrate how the loan will translate into profit or tangible business growth, using current and projected financials that have been carefully calculated.
It’s also important to detail precisely how the loan will be spent as part of your business plan, as this will reassure lenders that you require funding in the first place and are able to use this in a responsible manner.
So, if you do apply for a loan in a bid to fund your outdoor advertising campaign, it’s imperative that you outline your costs as accurately as possible and present the estimated return in purely financial terms. You may also need to tap into the various metrics used to measure outdoor advertising, including the potential audience for individual displays and the number of people that actively engage with your messaging.
Check Your Credit Rating and Get Your Financial Statements in Order
Whether you’re a business-owner or an individual, making unsuccessful loan applications can have a detrimental impact on your credit score and viability in the eyes of lenders.
This is why you need to develop an understanding of your credit score prior to making a loan application, whilst identifying areas for improvement and ensuring that your financial statements are in order.
Make no mistake; having well-organised, accurate and detailed financial statements can lower your risk portfolio in the eyes of lenders, whilst improving your credit score may also improve the terms of the loan that you’re eventually offered.
These are both key metrics on which lenders make their final decision, and you to be proactive in presenting a compelling financial case if you’re to be considered seriously for a loan.
Pay particular attention to your balance sheet, as this includes all company assets and should ideally reflect a cash-positive venture.
By presenting this cleanly and accurately too, you’ll dramatically improve your eligibility for a loan whilst also underlining your ability to manage funds responsibly.
Be Prepared to Provide Collateral
Whilst you may prefer to receive an unsecured loan, this may not be possible depending on your business’s circumstances and aforementioned risk profile.
This is why you should be open to the prospect of secured business borrowing, as whilst this will require you to provide collateral in the form of tangible assets, it should only become an issue in instances where you can’t repay your debt.
The key is to be fully prepared as a debtor, by organising your business assets and determining which securities you’d be willing to use a collateral against a loan. These can include everything from real estate and inventory to equipment and fleet vehicles, so long as these assets belong to the business in question.
Of course, your assets must also be approved by the lender, but offering a list of potential options can help you to strike a mutually-beneficial deal that enables you to secure funding.
When borrowing to fund one or more advertising campaigns, you may be particularly loath to use your company assets as collateral. This needs to be considered on an individual basis, however, depending on the potential return of each campaign and the assets that you’re required to provide to lenders.
The Last Word
As you can see, securing a loan for your small business can be a minefield, whilst it’s also important to ensure that this type of funding meets the core needs of your venture.
If a small business loan is right for your business, you’ll need to take practical and proactive steps to ensure your eligibility in the eyes of lenders and create a business plan that secures you the best possible deal!