Keep your books up to date
It is important to spend an hour or two every week checking your accounts and keeping your books up to date.
Having your accounts as current as possible is vital when you’re looking to secure finance as this is also one of the first things a lender asks to see. Ultimately, it’s no good having a booming business if you don’t have any evidence to prove that this is the case.
Don’t fall into the trap of putting this off. If you land a job and require equipment urgently, you don’t want to miss out on the opportunity because your books were too out of date for your finance to be approved in time.
Justifying your finance application
There are two parts to this. Firstly you have to be able to prove that you have the financial means to stay on top of your repayments, without having to resort to any drastic measures.
Secondly, you must be able to show that it’s an expense that makes sense for your business. For example, a utility vehicle is likely to be a logical purchase for someone who works in construction, whereas they’ll have a much harder time proving they need a top-of-the-line industrial sewing machine.
If you can justify the size of the loan required and that your business needs what it wants to get financed, you should be well on your way.
Structure your debt right
It is important to ensure your debt is structured in a way that makes sense.
If you are financing a piece of equipment you’ll need for three years, it’s best to structure the loan and repayments on a similar timeline. While a longer timeline, such as five years, will make life easy at the start of the loan with lower repayments, it can become difficult when the project is done and the asset is no longer generating any income.
Equity is money in the bank
Building equity is one of the best ways to make your business appealing to a potential lender.
While cash flow is king the more assets you own improves your chances to secure finance for any future equipment purchases.
You should therefore aim to pay off debt as quickly as possible and build your equity. It may not be as immediately accessible as cash, but it is seen as evidence of a well-run business, and will ultimately help minimise your long-term repayments.