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Why you should know your market before you apply for a loan

Why you should know your market before you apply for a loan

Owners of small businesses, contractors and freelancers should have in-depth knowledge of their own sector before approaching banks for investment funds, advises the British Bankers Association.

The BBA claims that SMEs will have a better chance of getting a loan if they are prepared to answer a barrage of questions about their respective industry.

Angela Knight, the BBA’s chief executive, said that it is imperative that you understand your market; what it looks like, is it a growth market? Is it vibrant? How large is your customer base?

Business owners should also compile a realistic set of forecasts showing costs and projected income. These numbers should be discussed with the bank to make sure they look right and are presented correctly.

In the financial year ending April 2010, total business angel investment activity dropped to £60.5 million, a decrease of 3.7% on the previous year, according to the Annual Report on Business Angel Activity in the UK.

Entrepreneurs have found it increasingly difficult to obtain funding for new start-ups. As a result, owners started exploring angel funding whereby wealthy individuals provide private equity and get shares in the business in return.

However, business angels were also affected by the recession and they had less money to invest in new ventures. The ARBAA report also showed that there were 4,555 registered business angels in the UK between 2009 and 2010, but only 37% of them were active and less than 10% made any investment during the period.

Despite the drop in activity, Mark Prisk, the business and enterprise minister, said the study shows the important role business angels have to play in financing new businesses. He went on to say he hoped businesses will continue to look to angels when they need business expertise and guidance as well as funding.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: I don’t know by Hilary Perkins

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