When applying for finance, a business must be able to explain its financial position clearly.

This does not mean every SME needs complex forecasts, perfect accounts or a dedicated finance department. For many businesses, owners and management teams are focused on customers, staff, suppliers and the demands of day-to-day trading.

However, when approaching a funder, clear and current financial information is essential.

Funders will normally want to understand how the business is performing, how it manages cash, what financial commitments are already in place and whether any proposed borrowing is affordable.

Depending on the type and scale of funding, businesses may be asked to provide:

  • annual accounts
  • recent bank statements
  • management accounts
  • VAT returns
  • aged debtor and creditor reports
  • details of existing borrowing
  • information on tax liabilities
  • financial forecasts or cash-flow projections

The exact requirements will vary. An application for asset finance, for example, may require different information from a working-capital facility, property refinance or funding intended to support expansion.

The central issue is preparation.

Understand the Current Position

Before approaching a funder, a business should have a clear view of:

  • recent turnover and profitability
  • current cash reserves
  • existing borrowing and monthly repayments
  • major customer or supplier dependencies
  • outstanding debtors and creditors
  • tax payments and its position with HMRC
  • recent activity within its bank accounts
  • expected future income and costs

A business does not need to present itself as being without challenges. Many strong businesses experience seasonal pressures, late customer payments, fluctuating performance or historic financial issues.

What matters is that the position can be explained honestly, consistently and with supporting information.

Make Sure the Numbers Support the Request

A funding application can quickly become weaker when the financial information is incomplete, out of date or inconsistent with the business’s explanation.

For example, a business may say it is growing but be unable to provide recent figures showing that growth. It may seek funding to address cash-flow pressures but be unable to identify what is causing the shortfall.

These gaps can make it more difficult for a funder to understand the request and assess the level of risk involved.

Good financial information strengthens the conversation. It helps the business identify how much funding it actually requires, whether it can afford the repayments and what type of finance may be most suitable.

It also allows funders to assess the application more efficiently and determine whether the proposed amount, term and structure are realistic.

The Takeaway

Good preparation will not guarantee that an application is approved. However, unclear, inconsistent or outdated financial information can make even a credible funding request more difficult.