Tips & Resources
5 Strategies to Secure Your Small Business Loan
It’s safe to say that businesses rely on capital to fuel growth and fund other initiatives. This is true whether you’re a startup bootstrapping the early months of your young business, a growing company looking to fund new initiatives, or your business occasionally needs capital to bridge a seasonal gap in cash flow. Some businesses might turn to an investor, but for most small businesses owners, it will likely be a small business loan.
The more prepared you are before you sit across the desk from a loan officer, speak to someone on the phone, or fill out an online application, the more confident you’ll be—and the more likely you’ll find the loan you’re looking for. Here are five keys that will help make your search for borrowed capital more strategic:
1. Be Clear About Your Loan Objectives
Take the time to identify what you need the money for and how much you really need. Regardless of whether or not the loan officer asks, this will help you determine the loan terms that make sense, the total cost of the loan you can afford, and how quickly you need the money.
Climbers at Everest Base Camp all know what they’re there for—to summit the highest peak in the world. They all start with a clearly defined objective. The stakes are too high to aimlessly wander around. Combined with a strategic plan, the right tools, the proper fitness, and the knowledge required to summit, their odds of success greatly increase. This is also true if you’re borrowing capital to help your business grow and thrive.
2. Honestly Evaluate the Health of Your Business
An honest evaluation of where you and your business are today compared to where you need to be to qualify for a loan is a critical strategic step that can’t be ignored. Your business credit profile, personal credit, your time in business, and the overall health of your business will likely impact your odds of success and where it makes the most sense to look.
Traditional lenders, like the bank, are typically looking for a credit score in the 700’s (680 is usually the bottom threshold), collateral, and a track record of several years that demonstrates you are a good borrower. Fortunately, if you don’t meet the criteria, it doesn’t mean you won’t find success outside the bank. Many online lenders will work with a business owner who doesn’t meet the stringent criteria required by the bank if they’ve been in business for at least a year and can demonstrate they have a healthy business.
3. Research Your Options Before Approaching Your Bank
Most business owners visit the local bank when they need a small business loan. It makes a lot of sense. They have a relationship there and their banker tells them that relationship is important. Unfortunately, if your business doesn’t meet the qualification criteria, that relationship isn’t likely going to help get them a loan. Banks and credit unions can be a good option for some borrowers, but crowdfunding, non-profit micro-lenders, and online business loans can also be good options depending upon you and your business’ situation. Don’t automatically dismiss something you’re not very familiar with—do some research, talk to more than one lender before you make a decision. If you find a lender you think you like, check them out with the Better Business Bureau and ask if you can talk to a current customer or two.
4. Get Your Documents Organized
In other words, do you have a good understanding of the financial condition of your business? It’s not uncommon for a lender to say, “If I understand more about a business by looking at the numbers than the business owner does, I’m not going to approve their loan request.”
Most small business owners don’t dive into their entrepreneurial dream because they’re really excited about the financial side of running a business. Nevertheless, it’s critical to understand to both build a successful business and identify the financing opportunities that make the most sense for your situation. Some lenders want to see detailed financial projections, profit & loss statements, pro-forma invoice earning estimates, and a business plan. Others will want to see tax returns or bank statements. Having access to these reports is important, but a thorough understanding of what they’re telling you is even more so. If you’re not sure about what the reports are telling you, your accountant can explain them to you so you do.
5. Don’t Commit Right Away—Shop Around for the Best Option
The first place most small businesses look is their bank. It makes sense; it’s where they have their business checking account or maybe a savings account. What’s more, depending upon your credit profile, the nature of your business, and other factors, this might be a good choice. Nevertheless, don’t be discouraged if they decline your loan application and don’t feel like you should stop there even if they say, “Yes”. There are more options for small business borrowers than ever before, if you’re willing to look around. And, if your business isn’t a good fit for the bank, there are many non-bank lenders willing to offer a small business loan to a healthy, growing business—if you’re willing to look online.
Thinking more strategically about small business borrowing isn’t a guarantee of a loan approval, but it will help you determine what makes the most sense for your business and help you put your best foot forward. The answers should identify areas where you are strong and others where you might need to work on things a bit. Regularly revisiting these five keys will help you as your business grows and your situation changes.
ABOUT THE AUTHOR
Ty Kiisel is a contributing author focusing on small business financing at OnDeck, a technology company solving small business’s biggest challenge: access to capital. With over 25 years of experience in the trenches of small business, Ty shares personal experiences and valuable tips to help small business owners become more financially responsible. OnDeck can also be found on Facebook and Twitter.
Going to miss the self-assessment deadline? Find out the excuses you will need
It is advisable to demonstrate that you have made some effort to overcome the problems you have reported
The self-assessment deadline is approaching fast, which means time is ticking on if you’re one of the millions of small business owners that still hasn’t filed their tax return.
UK business owners must submit their self-assessment tax return to HMRC by midnight on 31 January or face an automatic penalty of £100 for late filing. But for the million or so people that HMRC estimates fail to file their tax returns in time each year, is there any way of avoiding a fine?
Here Emily Coltman, chief accountant to cloud accounting software provider FreeAgent, looks at some of the reasons that HMRC will accept for late filing.
Do you have a “reasonable” excuse for missing the self-assessment deadline?
HMRC will only accept what it deems to be “reasonable excuses” as valid reasons for missing the self-assessment deadline.
According to its criteria, this is “when some unforeseeable or unusual event beyond your control has prevented you from filing your return on time”.
HMRC highlights potential occasions such as the following as examples:
- When there’s a failure in the HMRC computer system that prevents you from filing
- When your computer breaks down just before or during the preparation of your online return
- When you contract a serious illness, disability or serious mental health condition that makes you incapable of filing your tax return
- When you have registered for HMRC Online Services but didn’t get your Activation Code in time to submit your tax return before the deadline
- When important documents are lost through theft, fire, flood or similar circumstances and can’t be replaced before the self-assessment deadline. In these instances, HMRC will usually judge on a case by case basis and make a decision on whether they are reasonable excuses or not
Anything aside from these reasons is unlikely to be considered – especially if it’s an excuse that is clearly your problem rather than an unforeseen technical, medical or geographical circumstance.
That means you won’t be able to use something like “my dog ate my tax return” or “my wife helps me with my tax return, but she had a headache for ten days” as a valid reason for not filing your return (both of which were genuine excuses that people tried to give to HMRC last year).
You’ll need to prove your circumstances
If you believe that you have a reasonable excuse like the ones above, remember that HMRC will only accept them if they actually prevented you from filing your return on time when you otherwise would have done. HMRC is unlikely to be lenient if it believes that you are at fault for missing the deadline.
It’s therefore advisable to not only show proof of your situation to them, but also demonstrate that you have made some effort to overcome the problems.
HMRC will review each case on merit to decide whether it is a “reasonable” excuse or not, so it is up to you to explain your case and put yourself in the best light as possible.
If you aren’t sure whether you have a valid reason for missing the deadline, speak to your accountant and get their advice or contact HMRC directly to explain your circumstances.
Just be prepared for the bad news that your excuse isn’t considered reasonable by HMRC, and have £100 ready to pay the fine as soon as possible, so you don’t face any additional penalties down the line.
Remember you still have to file
Even if HMRC accepts your excuse and allows you to file your tax return late, this isn’t an indefinite reprieve. You’ll still need to file your return as soon as you can, and you’ll also need to pay the tax that you owe too.
Check with HMRC to find out exactly how long your deadline extension is and make sure you submit your tax return by that date, otherwise you’ll start to incur penalties.
Emily Coltman FCA
Make sure you pay HM Revenue and Customs (HMRC) by the deadline. You’ll be charged interest and may have to pay a penalty if your payment is late.
For further advice on how to pay you tax bill click on the link below:
How to reduce corporation tax as a small business owner
British business owners enjoy some of the lowest corporate tax rates in the world – but there are ways to reduce corporation tax even further
Writing for Business Advice, Scott Brown, managing director of financial management firm Sable International, offers essential tips to UK business owners looking for ways to reduce corporation tax.
Declining corporate tax rates
Corporate tax in the UK has been steadily declining over the last few years. Currently, the UK has the lowest tax rate (20 per cent) in the G7 and by 2020 it aims to have the lowest in the G20. This is already great news for corporates looking to establish themselves in the UK.
The recent Autumn Statement confirmed the government’s commitment to lowering corporate tax rates. The chancellor stated that the rate will be lowered to 17 per cent by 2020.
But even in a tax regime as lenient as this, there are ways to further reduce corporation tax and decrease the amount you pay on your profits in the UK.
There are existing legitimate allowances and reliefs that can aid British-based businesses. There is also the looming exit from the EU which will likely alter the corporate tax landscape.
Payments into pension plans
Payments into pension plans can be an excellent way to reduce corporation tax, however there are tax guidelines that must be adhered to.
Most businesses qualify and if you’re already registered for auto-enrolment you will almost certainly qualify for some form of relief.
You need to make sure that your payments are calculated as expenses and that they are made “wholly and exclusively for the purposes of your trade”. This is an often-tricky distinction, so it’s always best to consult with a tax expert before you start trying to seek this kind of relief.
You can claim capital allowances when you buy assets that are directly related to running your business. Items like equipment, machinery and vehicles can all have some or all their value deducted from your profits before those profits are taxed.
In addition to these items, you can also claim on your business’s day-to-day running costs and interest payments as well as finance costs for buying assets for your business.
Tax relief can be claimed for expenditure on research and development, intellectual property and patents to name but a few.
Research and development relief
If your research and development project advances overall knowledge or capability in a field of science or technology, you could be able reduce corporation tax by claim some relief on your profits.
HMRC has specific guidelines on this category of relief and each business must justify why its work qualifies for this relief. It’s best to consult with an expert if you intend to make use of this relief.
The Patent Box
If your company earns profits from patented inventions, you will be able to claim some of that tax back via the Patent Box. You will need to have the exclusive license on the patent to claim this relief and you must be able to show that your company was instrumental in developing them.
You must make representations to HMRC to be eligible for this relief. There are a variety of categories of patents and rules and regulations surrounding this relief.
Creative industry tax reliefs
There’s good news for companies that make their profits from specific forms of media. You can claim relief if your company is directly involved in the production of the following:
- Certain films
- High-end and children’s television programmes
- Animation programmes
- Video games
- Theatrical productions and orchestral concerts
To reduce corporation tax in these industries, your company must pass a cultural test administered by the British Film Institute. Although the process is quite complex, the relief is significant.
When you close your business, you can transfer certain types of assets to shareholders without incurring corporation tax charges on the disposal of those assets.
This is an extremely complex part of corporation tax and, if you’re winding up a business, you must consult a UK-based accounting firm ensure that you pay the least tax possible.
What effect could Brexit have?
UK corporation tax has been relatively low for more than 15 years now. France and Germany have long complained that the UK was a de facto corporate tax haven, as the current 20 per cent is far lower than the 34 per cent and 30 per cent rates in France and Germany.
An exit from the EU would see the UK able to pursue whatever tax regime they desired with an increased level of independence.
It could well be, to encourage European multinationals and banks to stay in the UK, that the government would likely continue shaving percentage points off corporate tax and ensure that conditions in the UK remain business friendly.
Simply put, we do not know, beyond 2020, how UK corporation tax will change. However, we have seen successive governments, both Tory and Labour, support lowering tax rates on UK-based businesses.
So for now, and in to the future, the UK remains very much open for business.
Scott Brown is managing director of Sable International
Focus on the process to get the result
That’s the simplest secret to creating change.
Have you ever had a look at your day to identify your bottlenecks? You know, places where you’re getting stuck?
Without even being aware of it, you could be tripping over the same physical and mental traps, which are stopping you from being better this year.
For example, what do you do on your lunch break at work? Is your process to buy food or to bring some from home? Is it to eat at your desk or to eat in the common area?
If you bring more food from home, you need to prepare it earlier, which means you have to get up earlier, which means you need to sleep earlier the night before, which means you have to not stay up binge-watching Netflix.
Sounds like common sense when you put it like that, but that’s process for you.
Making little changes later in the process forces you to make them earlier too.
Identify the chain, tweak it and watch your life change in incremental but meaningful ways.
Everything you need to know about your first self-assessment tax return
The UK tax year runs to 5 April each year
The Christmas holidays are over, which means that for many small business owners it’s time to start thinking about their self-assessment tax return as the January rush has started
Here Emily Coltman FCA, chief accountant to FreeAgent – provider of award-winning cloud accounting software for freelancers, micro-businesses and their accountants – offers her top tips to help make your first year of self-assessment as painless as possible.
More than ten million people in the UK are required to file a self-assessment tax return – including the country’s five million or so freelancers and micro-business owners – and they have until the end of January to do so, or risk being fined by HMRC.
If you’re one of the many self-employed people who started a business in the past tax year (from 6 April 2015 to 5 April 2016) and are facing your first year of self-assessment, you may be a little daunted by the process and worried that you might make mistakes with your tax return.
Don’t forget to register with HMRC
Before you can start your self-assessment, you have to make sure that HMRC is actually expecting a tax return from you – which means you have to register your business with HMRC first.
Remember that HMRC has to send you an activation code by post and if you don’t have this code, you can’t file your return. Therefore, it’s a good idea to register as soon as possible so that you’re guaranteed of getting your code well before the submission deadline.
Decide what your year-end date will be
All business owners have to prepare their accounts to a particular date every year, which is called your “year end date” or “accounting year end date”.
The simplest year end date to have in the UK is one that matches the tax year, which runs to 5 April each year. By concession, HMRC treats accounts that end on 31 March as matching the tax year.
You can choose whatever year end date you like, but be cautious when doing this. Having a year-end date that doesn’t match the tax year could potentially result in you paying tax twice on the same profits in the early years of your business (though in later years it means you may pay tax later than otherwise).
Remember that in your first year of business, you would have to report on your tax return your profit figure for when you started your business to 5 April 2016 – even if 5 April 2016 was not your year end.
If you want to keep things simple, it’s a good idea to stick to the tax year end – it’s much easier.
Don’t miss anything out in your accounts
When drawing up your first year of accounts you need to take into account all the transactions your business has had in that year. So if you started your business on 5 May 2015 and you choose the tax year end for your business’s accounting year end, you will need to include in your accounts all the transactions that happened between 5 May 2015 and 5 April 2016.
Remember to include all of the following information in your accounts:
- All business costs, including those you paid for yourself rather than from the business’s bank account. Remember this can include any costs that you incurred before your business actually started to trade – provided you spent the money no more than seven years before the start of your business and the cost could have been included if you had incurred it after the start of your business.
- Unless you are using the cash basis of accounting, you will need to include income that you invoiced – or which you’d done the work for – before 5 April 2016, but which your customers didn’t pay you for until after that date.
- Any large pieces of equipment (referred to as “capital assets”) that you bought for your business. These don’t go in as day-to-day running costs but you may be able to claim capital allowances on them.
Don’t forget other sources of income
If you have income from other sources as well as your business – for example if you have a job as well as being self-employed, if you earn interest on a bank account or if you rent out a property – then you will need to include these on your tax return too.
Collect all of the paperwork for this income, such as your forms P60 and P11D from your employer, or bank interest certificates. Remember, you need the paperwork that relates to the tax year 2015/16 – i.e. the tax year which ended on 5 April 2016.
Remember to file on time
Your tax return will need to be filed online to HMRC by 31 January 2017. If you file after that date – even by so much as a day – then you’ll be fined £100, and the fines increase if your return is more than three months late.
These fines apply even if you don’t have any extra tax to pay or if you have paid all your tax.
You can file your tax return via HMRC’s online portal.
Look for help if you’re unsure about your numbers
If you’re not 100 per cent confident about your tax calculations or how you’ve been managing your financial data through the year, it’s a good idea to enlist the help of a professional accountant to help you through the process by preparing or checking your tax return for you.
However, be warned that December and January tend to be the busiest months of the year for accountants and some of them may charge an extra premium to new clients who join them during this season.
Emily Coltman FCA is chief accountant to FreeAgent.