Definition: Essentially, affordability is how we make sure that we only loan business owners what they can afford to pay back. While we have our own unique measurement methods, the fundamental principle is checking that you can afford to pay back the funding you are wanting to take.
Why does this exist?
In short, Lula prides itself on the principle of not being a predatory lender. This is why we need to look at your bank statements and your business’s financial health – we don’t want to give anyone capital that they can’t afford to pay back, worsening the problem you came to us to solve.
Declined on Affordability?
What can I do?
Your goal: keep the money available in your business bank account at an average high amount.
Keep your business bank account balance high.
Don’t use your business bank account for any non-business related (ie: personal) expenses. Outside of tax and legal reasons, this lowers your available balance and makes your business’s finances look less healthy than they are.
If you are transferring capital from your business bank account into a high-yield savings account (which is a good idea!) or other kinds of accounts, make sure you do so within your business’s means; don’t transfer so much that when debit orders or expected expenses happen, your business bank account exceeds its overdraft limit. This will affect your credit score (read more about credit scores in our article here and negatively affect your affordability rating. And remember, when you apply for any kind of business funding, make sure to include these other accounts with your paperwork if you have them. We don’t want to miss knowing your business is doing great, but we won’t know until you tell us!
Don’t exceed your overdraft limit
We understand that when your business needs are dire, the temptation to allow your overdraft to go over its limit is there. But, rather than doing so, request an increase in your overdraft limit from your bank (if possible) and/or then apply for capital at a place like Lula. You need to anticipate when you need more cash flow before your balance makes it harder to get what you need. Try to ensure you are aware of your business’s finances and keep tabs on what’s going on – anticipate a problem before it’s a problem. Exceeding your overdraft limit will also incur expensive fees, which will not help your financial situation.
Utilise your supplier payment terms
Many suppliers and partners in your industry may offer terms that allow you more flexibility and a higher average bank balance. If you have 30 days to pay, or there is an option to pay in smaller instalments, take advantage of these offers! Paying bills immediately might feel like common sense, but doing so will result in a fluctuating cash flow when consistency is the goal you’re aiming for.
Increase your business’s profits.
We know – easier said than done. But even in the ebb of your business’s flow, there are still steps you can take to bump up what your business brings in every month. Review your business overheads and see if anything can be reduced – energy bills, supplier costs, unnecessary expenses.
Try testing out other ways to bring new customers/clients to your business – referral programs and utilising your local business network to reach new people can help you bolster your business’s income and make sure that whenever times do get tough, you have a variety of streams to rely on.