When it comes to business, most entrepreneurs will learn as they go. While it’s hoped that every venture you take part in is a success, there is always the risk that things might not go according to plan – leaving you with a failed business under your belt.
If this sounds like you, you aren’t alone. Countless entrepreneurs, now considered successful, failed before they launched their winning companies. So, if you have had a past downfall, it doesn’t mean you can never enter business again: it just means you need to learn from those lessons and come back with a robust proposition.
However, if you do have a history of business debt or bankruptcy, you may be worried that it could count against you when applying for finance for a new venture. Lenders will take into consideration the risk you carry when deciding whether to loan to you – and a past defeat could scare away the more risk-averse lenders.
Thankfully, there are things you can do to overcome this barrier and help your new business idea to get the funding it needs. In this blog, we have outlined what you should to access the finance you require, even with a failed venture behind you.
Be honest
First things first: when applying for finance, regardless of your circumstances, you must be honest in your application. While it may be tempting to ‘erase’ a business mistake from your past, you must disclose it if asked. If you don’t, it is highly likely the lender will find out anyway when carrying out credit checks. Even if they don’t, there will always be the risk of them uncovering it later down the line, making your loan agreement void and potentially seeing you liable for fraud.
If the application does ask for information about your past finances, you should give all the necessary details in a truthful manner. Don’t alter the numbers or attempt to mitigate the situation that occurred. A lender is likely to appreciate your honesty, which could count in your favour.
If the topic comes up in conversation with a financial advisor or investor, you should again be open about your past. You should also focus on what you have learnt from the failure and how this will translate to the success of your new venture so that you can focus on the positives rather than the negatives in your pitch.
Utilise lenders who are open to risk
In today’s world, the lending market is vast and diverse. As a result, there are now more lenders available who are willing to lend to higher-risk businesses and entrepreneurs.
While traditional sources, such as banks and commercial lenders, tend to be risk-averse, there are now alternative lenders who may be more open to risk. An example of this is peer to peer lending, which sees individuals and businesses providing loans to enterprises. There are many platforms now dedicated to matching peers up with relevant companies, making the process simpler.
As the funds come from peers, rather than banks, higher-risk businesses have a better chance of being accepted. However, lenders will still want to see reasonable returns on the money they give to you, so you must be able to convince them that you will be able to ensure the success of your enterprise.
Similarly, equity investment may be the way forward. Some investors enjoy the challenge of a high-risk firm, which means they may be more welcoming to you. Additionally, investors tend to be experienced businesspeople, meaning they may be more understanding of your history and willing to look past a failure – provided you have learnt from it. The key to securing their investment is how you pitch your idea, so you must be confident in the value you can offer and be able to put this across effectively.
Finally, you may wish to consider venture capital. Venture capitalist firms specialise in working with high-risk enterprises with growth potential, intending to drum up capital and receive a high return on investment as a result. However, they will take an active role for an extended period (up to eight years) and take shares in your company, so you must be prepared to facilitate this. But, if you have high growth ambitions, they could prove incredibly beneficial in providing the funds and support you need to get off the ground.
Have a strong business plan
When you are seeking funding, the focus should rightly be on your business and not on you as an individual. So, you must illustrate the value your new venture will offer to counteract any risk you may provide based on your financial record.
Any finance route you go down will require you to show your business plan. As such, it is vital to make sure this is considered, well-presented and watertight. Spend time crafting your plan and ensure that it demonstrates the ways you will achieve success, serve your customers, generate demand and the logistics that will make it run smoothly. You should also utilise financial forecasts to show you have a grasp on what funding you will need and when, as well as the assumptions you have made.
By having an excellent plan in place that documents why lending to your business would be a good idea, you will enable lenders to see past the risk and instead focus on the returns they could obtain. A good idea will always be a success, regardless of who is behind it – meaning that your own risk shouldn’t count against you.
Use security and assets
When a business poses a risk, any loans offered will likely require an element of security. This security acts as a way of the lender getting their money back, even if the payments are not maintained on the loan given.
Security usually takes the form of either assets or a guarantor agreement. With an asset-based loan, money can be raised against the assets you own. In the event you fail to meet repayments on your loan, the assets could then be seized to clear the owed balance.
With a guarantor loan, the guarantor will need to sign an agreement that, if your business fails to keep up with payments, they will pay the balance on its behalf. Of course, this may be a heavy burden on the guarantor’s personal finance, so it is worth making sure they are comfortable with the risk.
So, if your company owns assets or has someone willing to guarantee a loan, you may be able to mitigate any risk, making providers more open to giving you a loan. This means that if you are struggling to get funding – as a result of a past failure – you could utilise security to obtain the loan you need instead.
Get advice
Accessing the funding you need can be tricky, especially if you are seen as a risk because of a past venture that went wrong. If you are getting frustrated, it’s important to remember that one mistake should not rule you out of the game forever – but you do need to find the right solution for you.
Utilising risk-open avenues of finance and creating a bulletproof business plan should enable you to find an option that provides the support you need while allowing you to be honest about your history. With this, you will be able to push forward with your new venture and hopefully find your success story as a result.
If you need advice on creating a great business plan or knowing where to source appropriate funding for your enterprise, our team of advisors are here to help.
With knowledge across a range of finance types and experience working with companies of every shape and size, we provide guidance tailored to your needs and help you to raise the equity you want.