There will be times your business needs substantial funding. In such instances, external finance is often called upon as most companies will not have the cash resources they need.
There are a few options on the market for businesses with significant financial gaps. Debt funding through a commercial loan is one of the most popular. Many lenders will provide higher sums to eligible companies, enabling you to meet your objectives.
However, it isn’t always easy to secure a large business loan. You need to meet specific criteria and find the right lender to maximise your funding potential.
Our guide explains how to boost your chances of obtaining a large loan and when you might need one.
What large business loans are used for
A large loan has many purposes in business. It is commonly used in the following scenarios:
- Funding growth (including introducing new functions, scaling up and developing products/services)
- Re-optimising your operations (including investing in staff training, restructuring and updating equipment)
- Acquisitions
- Management buy-outs
If you are experiencing a substantial cash gap caused by falling revenue or increasing costs, you might find it harder to secure a business loan. Lenders will want to be convinced of your ability to repay, which will become more challenging if you are experiencing difficulties. However, you may be able to access funding through turnaround finance or an emergency loan.
8 tips for securing a large loan for your business
If you have decided a large loan is the route for you, it is crucial to find a competitive lender and meet their criteria. We have listed eight tips to help.
Know how much you need
Before pursuing a loan, knowing how much money you need to meet your objectives is vital.
Start by understanding what you want to achieve. Then, predict the costs you will need to cover to get there. If you have some reserves or other funding you will utilise, remember to subtract that from your overall amount.
Once you have calculated how much you need, it will become much easier to refine your options and enter the process with a clear understanding of what you need to raise.
Find the perfect lender
Different lenders will have their own funding criteria. Depending on the lender and the circumstances, you may expect to raise anywhere between £100,000 and £2 million or more.
When comparing lenders, you should check their preferred sectors and funding limits. It’s worth reviewing their acceptance criteria and how well your business meets them – the more eligible you are, the higher the chances of your achieving your funding requirements.
Some loans might come with additional support, such as mentoring or networking opportunities
Use security
Using assets as security is crucial for leveraging considerable amounts of funding.
With a secured loan, the risk to the lender is reduced as they have an option to clear the balance (by recovering the assets) if you fail to keep up with repayments. As a result, this reduces your risk level and they may be more willing to lend you higher sums. Secured lending should allow you to access more favourable interest rates.
It relies on you having sufficient assets to utilise as security. However, if you do, expect to be able to raise more finance than you would otherwise.
Have a favourable credit score
There are many factors a lender might use to determine whether to lend you the money or not. Security is one, and your credit score is another.
Your credit score reflects your financial history, including whether you have been late in repaying debt and conversely if you have a proven record of paying on time. A high credit score generally suggests you’re more trustworthy.
If you have a good credit score, a lender is more likely to loan you higher amounts of funding because there’s a better chance of you repaying it on time. Risk-averse lenders may only offer you smaller sums if your credit score isn’t favourable.
If your credit score needs a boost, there are steps you can take to improve it.
Have a strong business plan
Another factor a lender may use to determine how much they should lend you is your business plan. Every company should have a plan, which explains the value proposition, growth strategies, operational and sales plans and details financial forecasts.
Lenders will look at this plan to determine your ability to pay them back. If you have a strong strategy demonstrating how the funding will be used to generate commercial rewards, it’s a sign that you will bring in the revenue to repay the loan. As such, a lender is more likely to provide you with funding.
If you haven’t already got a business plan, or yours needs optimising, it’s crucial to spend time on it so it reflects your company in the most favourable light.
Working with a business advisor will help in getting your plan into shape.
Work on your application
Many loans, especially large loans, will require an application. This documentation will give details about your business and the reasons you need funding.
When trying to secure a maximised amount, you need a robust application. Provide the lender with all information they request clearly, while also seeking to highlight the strength of your company.
It’s worth looking into the lender in advance to determine what they are looking for so you may adjust your application to align. If you deliver an application that meets their criteria, you’re far more likely to receive the funds you want.
Remember, your application must be truthful. If not, you face receiving funding you cannot afford to pay back or having the loan withdrawn later if you are found to be fraudulent.
Ensure you can afford repayments
Affordability is crucial when seeking funding of any kind. Larger loans generally have higher repayment instalments, which you need to be met. Doing so may strain cash flow if you aren’t bringing in substantial revenue.
Before committing to any loan, ensure you will confidently be able to meet the repayment schedule. If you don’t, you risk placing your business in debt, leading to financial instability and even closure.
If you cannot afford to repay significant debt levels, consider other options – including equity finance.
Consider other options
If you have a substantial funding gap in your business, a large loan isn’t the only option to fill it. There are other options, especially for those who don’t want to repay a large loan or struggle to receive funding from lenders.
Other potential solutions include:
- Equity funding, including angel investment and venture capital, where you do not need to repay the investment
- Crowdfunding or P2P lending, where you receive financing from a pool of lenders
- Other asset-based lending solutions such as invoice discounting, stock finance or trade finance
- Obtaining funding sources from various channels, including smaller loans, until you reach the level you need – this is far from ideal and is fraught with complications
These options might better suit your requirements and eligibility criteria, so it’s worth considering what else is available.
Get support
Securing a large loan for your business is no easy feat. It requires the right preparations, including a lender that aligns with your needs and your ability to meet their criteria.
Optimising your application, having a solid business plan and utilising security will enhance your funding potential.
Working with a financial specialist will help. At Pegasus Funding, we will support you in finding the perfect solution for your funding need and guide you through the application process to maximise your chances of success.
We will also present alternative options that might better suit your needs.