Three in Five London Businesses Turned Down for Business Finance
By TLB Contributing Author: Luis Aureliano
London is one of the largest financial hubs in the world, yet SMEs are being turned down for business finance at every turn. Not surprisingly, many experts believe the lack of available finance is seriously hampering the growth of SMEs operating in the capital, which is bad news for the local economy.
A survey carried out by LDF, a leading provider of business loans to small and medium-sized businesses found that 57% of SMEs have been turned down when they applied for a business loan. This figure is far higher than in other areas of the UK. In Wales, for example, only 30% of SMES are turned down, and the situation is much the same in the North of England.
Complex Terminology is a Stumbling Block
The LDF survey also found that many SMEs didn’t understand complex finance terminology. In fact, 51% of business decision makers said that the failure to understand terms such as CAPEX and ROCE was behind their decision not to apply for a business loan.
Not all businesses need finance, but for 43%, a business loan is critical for their future growth plans. Business funding allows a business to scale up when the time is right, which for many entrepreneurs and SMEs is all part of the plan.
The Secrets of Success
Successful entrepreneurs like Gurbaksh Chalal would not have been able to found four successful businesses without business finance. One of his latest ventures, Gravity4, now has a presence in 20 countries worldwide. Would he have managed this level of strategic growth and been able to create the Chahal Foundation without business loans along the way? It’s doubtful. With him now doing so much good for women and children, it’s a good job that finance was available to him when he needed it.
Alternative Sources of Funding
All businesses need a source of funding. Bank loans are the traditional way for SMEs to seek extra funding, but there are now more options than ever. Many entrepreneurs use crowdfunding websites to raise capital to fund new startups or business expansion projects. The process for pitching on a crowdfunding website is similar to applying for a business loan. Without a business plan and a great pitch, investors will be wary of handing over their cash. However, if you hit the mark, you could be inundated with funding within a few hours. For many SMEs, time is of the essence.
Time is of the Essence
Many companies (83.6%) told LDF researchers that it took far too long for lenders to approve a loan application or hand over the money, which in turn affected their cash flow. 21% of respondents said they were forced to make employees redundant. Some had to re-mortgage their home to keep the business afloat and a few unlucky souls saw their relationship bite the dust because of the stress of it all.
Applying for the right funding is critical. Whilst business loans are a good place to start, it is important to accept that funding may not always be forthcoming, especially if your business is based in London (or so it would seem). Maximize your chances of a successful loan application by drafting a solid business plan. The lender will want reassurance you are not going to default on the debt.
If your business loan application is turned down, look at the possible reasons why and draft another application. It is also worth asking the lender for feedback to see if there was anything you could have done differently. It may be that you didn’t provide enough evidence of business growth or your figures were vague. Learn from your mistakes and use them to hone your next application. And if you have specialist finance needs, approach a broker for assistance.
About the Author: Luis Aureliano, a business writer and financial analyst. With over 15 years of experience in global finance and an MBA in economics and management, Luis’s areas of expertise include business, marketing, communications, personal finance, macro economics, stocks and emerging markets.
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