Expansion is an integral part of growth for any business, and IT companies are no different. There are also many fronts on which an IT company may choose to expand into, whether that is upgrading its infrastructure or growing its workforce, both through numbers and training.

In almost all cases, expansion initiatives will require an investment, with the size and type of the initiative being reflective of the size and type of loan that would best suit it. If you are an IT business owner and have been considering ways your business could expand to reach new markets or achieve further growth, below we’ll break down and discuss the most common reasons why IT companies seek financing with us at Nucleus.

Accessing New Markets:

One of the most common reasons for IT companies taking on finance is so they can launch their services, current or new, into new locations, whether that is via brick and mortar stores, or into online markets where international customers can be reached. With a loan to help with your expansion, your business can launch a marketing campaign via numerous routes, including pay-per-click advertising on search engines like Google, search engine optimisation campaigns, and social media initiatives, all in efforts to establish your brand’s presence in your intended market. In the case of a physical expansion, finding the best loan suited for that, via a mortgage or bridging loan, would be considerably different to the kind of funding needed for an online expansion. In all cases, you should research the right kind of financing that will help you reach the broadest range of customers.

Upgrading Your Infrastructure:

As your business grows you will likely start finding a need for improved infrastructure, with things like additional servers and new software, or upgraded cloud solutions that will scale effectively with your operations becoming targets. If you do not have the upfront capital available, a loan can help secure these improvements, supporting an increased data capacity and ability to offer a quality service. Some areas to consider a loan for upgrading that will keep you competitive in your sector include:

• Hardware upgrades: Through the investment in newer, high performance servers, storage systems, or networking equipment, you can improve your business’s operational efficiency while reducing downtime. Hardware upgrades will essentially allow your business to manage larger workloads through simpler processes.
• Software licensing: Another improvement to efficiency, but more focused on security—by acquiring enterprise grade software tools you can streamline the workflows throughout your business by automating tasks, and also safeguarding any sensitive data you handle throughout processing.
• Cloud migration: Newer businesses will have been built with cloud technology, however some may still be in the transitional phase, whereby using the cloud will allow your infrastructure to be vastly more scalable, and it makes data much more accessible while saving large costs on the need for physical servers.

Talent Acquisition and Training:

In a cutting edge field like IT, finding and keeping high level talent can often be the difference between a success story and another failed startup. If you are in a position where you need to recruit a skill professional or invest in the development of an existing employee but are lacking the funds, a well utilised loan can be the ideal solution. In the cases of many loans, finance can be used for:

• Hiring specialised talent: There are many key roles required across a successful IT company, from developers and work on programs, to cybersecurity experts keeping everything secure. If you lack any particular expert and know you will need it for your next business pursuit, you can hire specialised talent to tackle that complex project by leveraging their expertise.
• Onboarding and training programs: Once you’ve brought some new talent onboard, you’ll want to ensure they are well equipped so they can continue to contribute to your business’s growth initiatives.
• Upskilling your current staff: If any staff are promising and want to improve, it can be a great idea to offer them advanced training to keep your team up to date with any new technologies or get them ahead on emerging tech. Look at it as an investment in the future of your business and a way to remain competitive.

Increasing Operational Capacity:

Scaling up your operations will mean that your business can start taking on larger or more complex projects, however this may also come with the costs of spreading your existing resources thin. A loan for expansion in this way can be helpful in increasing your business’s operational capacity through things like new equipment and larger office spaces, as well as the new team members that can take advantage of the training mentioned above. Some examples could include:

• An IT consulting firm: If you are consulting you may need additional numbers to handle your growing client base, and with new staff who are being trained, your firm will be able to take on more projects with confidence, growing your client base and improving on your business’s overall service quality.
• A software development company: If you are in development, investing in the latest tools that can help accelerate your project timelines would be ideal, as these advanced tools will help manage larger workloads while improving the efficiency of your operations.
• A managed services provider: If you are a service provider, the larger your data centre capacity, the better you can service your clients, and this kind of expansion will allow you to accommodate larger and more complex client requirements to boost your overall revenue.

In all, a loan for your business can mean overall improvements that will lead to growth, while allowing you to maintain your financial stability over the course of a loan term. Between accessing new markets, upgrading your infrastructure, or bringing on new staff, securing funding for your expansion can offer a large range of benefits to help keep your business ahead of the competition.

There are numerous factors that will determine the eligibility of an IT company for securing a business loan, and it is important for those companies to have an understanding of the factors that will influence that decision before making an application.

Between the evaluation of basic requirements such as proof of ID and trading eligibility, major factors like credit and financial history, and more nuanced subjects such as the prospective lender’s request for a business loan, there are many things to consider. Knowing these criteria before you approach a lender, and knowing what they will expect of you, can drastically improve your chances of success, so below we’ll expand on the most important factors that we consider here at Nucleus when a business approaches us for a loan.

Creditworthiness:

While at Nucleus we do not take credit scores as the be all and end all of a loan application, and instead like to look at each business, its owners, and its history on a case by case basis to fully understand your position, you will find that more traditional lenders are much more reliant on this number when making their decisions. In most cases, for a business loan, your business credit score will be the number we look at as lenders, however in some cases your personal score may also be required.

• Business credit scores: A business credit score ranges between 0 – 100, and the higher your score is the less risky you will be considered. Above 80 is ideal, and below 20 will raise some questions. Ideally you’ll have an established credit history that reflects consistent and successful debt or credit payments.
• Personal credit scores: A personal credit score ranges from 0-999, and again, higher scores are more positive for lenders, above 880 typically being considered good by most lenders. In the case of startup IT companies, this is when you will most likely be asked for a personal credit score rather than a business one that has had no chance to establish itself yet.

As mentioned above, low credit scores don’t necessarily mean you will not be able to secure a loan, especially not with us at Nucleus, however, across the board, you can expect to find higher interest rates or more stringent terms if your score is particularly low, simply due to the risk attached to lending.

Revenue and Cash Flow History:

Regardless of the company type nor sector you operate in, when applying for a loan, businesses can expect to be able to demonstrate a steady revenue stream and healthy cash flow, and through this you can demonstrate that you are capable of meeting repayment obligations. This is particularly important if your business relies on fluctuating incomes via project based contracts or subscriptions models, which can still be steady across the course of their cycle, but will present differently to businesses that make steady month on month income.

• Monthly revenue trends: In almost all cases, when you make a loan application, you will need to present between 3 to 6 months of your most recent bank statements, and lenders will then analyse them to ensure you have a reliable income stream.
• Cash flow stability: As lenders we will be looking out for the stability of your cash inflows and outflows to help us understand how much your business can afford. If your revenue is variable, having detailed cash flow projections to present can help strengthen your application as it will also help to show lenders exactly how you plan to repay their funds.

Trading history:

Many lenders will require your business to have a minimum trading history, for example here at Nucleus, our unsecured business loans require that your company has been trading for at least 6 months, and revenue based loans a minimum of 4 months. Some lenders may expect you to have been trading for up to 2 years, as they believe a longer trading history is more reliable and can better prove your ability to sustain your operations while making repayments.

If you are a startup, you will likely need to approach a lender that specialises in funding startups, however for established businesses, the average trading history requirement will be 6months to a year. If your business is newer, and your financial statements are sound, you can lean more heavily into a thorough business plan and financial projections to demonstrate to lenders that you know your market to help secure a successful application.

Business Plan and Loan Purpose:

Depending on the scale of the loan and its purpose, many lenders will want to see a business plan, and if they do, making it as thorough as possible will be beneficial for your business. It should include how you are intending to use the loan, as well the expected return on investment you hope to make from the funding, as both will demonstrate that you’ve calculated and considered how impactful the loan will be for your business, helping to ensure the lender you’ll be able to repay it. There is a long list of things that make up an efficient business plan, and it can be worth discussing those factors with your accountant, or using the UK government website to get a breakdown of what to include if a prospective lender has requested one.

Type of Loan:

In most cases, the eligibility criteria of your application will change depending on the type of loan you are seeking and its purpose. Understanding these specifics before you approach a lender can further help you with your application, making it more thorough and convincing to a lender. Some things you might consider depending on the facility could include:

• For unsecured loans: While these loans don’t require collateral, you can expect higher interest rates, and with it, the need for a higher credit score. Higher rates of course mean higher overall repayments, making affordability a potential factor to think about before committing.
• For asset finance: In the case of asset finance lenders will tend to focus on the value of the asset being financed, whether that is for servers or physical equipment, rather than your business’s credit. Having a full understanding of the true value of the asset in this case will be important.

Open Banking Access:

At Nucleus, our application process is so quick and effective, being able to process your application and potentially have the requested funds into your bank account within 24 hours, because of our use of Open Banking. More lenders are making this a requirement, as it ensures security and transparency by accessing your financial data—with your permissions—and getting an immediate and complete picture of your business’s financial health. If you have not yet integrated your business finances with Open Banking technology, it can be a great idea, as it will help considerably when you make an application, not just for the lender to determine your eligibility for a loan, but also your business’s long term ability to repay it.

IT businesses are unique in the sense of the sheer scope of loan types that can apply to them, from physical operational locations to workforces and cyber needs. Due to this spread, obtaining a meaningful loan can be more difficult.

If you are an IT business owner, it helps to be able to recognise the potential challenges you might come across when applying for a loan, and also know what can be done to tackle these challenges. Below we’ll break down a range of areas that an IT business might come across issues when trying to secure a loan.

Fluctuating Revenue:

To begin with, many IT business models will experience revenue variability depending on how they trade. For example if your company is reliant on project based contracts, you will be more likely to face income gaps in between your completed projects, however if you run on a subscription based model, these cash flow fluctuations will be tied to the seasonal demands that draw your client base to your products or services.

Depending on what your prospective lenders offer, you may find that a steady and predictable cash flow is preferable, as in most cases it is more reassuring them to know that your finances are stable. At Nucleus we offer revenue based loans, which are more suitable to businesses with fluctuating income, and repayments are made based off of your projected revenue, meaning during slower months your repayments will be much more forgiving.

Lacking Physical Collateral:

Modern IT companies, particularly smaller ones, often lack physical assets such as inventory or equipment, as the move towards cloud computing has become the more reliable norm. Instead, intangible assets like intellectual property, software, or subscription revenue might be more likely to contain your business’s value. In many cases lenders may be more hesitant if your company is primarily secured through intangible assets as it is much more difficult to liquidate them in the event of a default. For this reason, you may need to consider other loan options such as unsecured business loans which do not require any collateral, but can still grant you access to the funding you need to pursue growth.

Startups Seeking Loans:

Newer IT firms will often fail to meet a lender’s minimum trading history requirements, which as mentioned in a previous FAQ typically range from between 6 months and 3 years. Without this proven track record, more traditional facilities will be a struggle to secure as lenders will consider you too risky. In this case you can consider pursuing a startup loan, with the UK government providing up to £25k along with 12 months of mentoring. A thorough business plan will also help when approaching startup lenders, as it will demonstrate a knowledge of your industry, and show you have a complete plan of how to use your funding to succeed in business.

Surviving in A Competitive and Changing Industry:

Because of the rapidly progressing technological changes that occur every year in the IT industry, you could also find resistance from lenders when you are seeking a loan because of how quickly trends shift, resulting in the potential for large losses in profitability due to failed repayments. If you are a business that is focused on pursuing innovations, it can help to make some things clear when you approach a lender.

Being able to demonstrate how your business will adapt by showcasing how your technology is ahead of the curve can help build up trust in your brand. You may also want to highlight how the development of your products or services will offer unique revenue streams ensuring your business is a safe bet to lend to. Providing evidence that your current client list has a high retention rate will also help build trust, with long term contracts proving your business can remain stable despite the volatility of the industry.

Securing a loan for your IT business will have its own unique challenges depending on its intentions for the loan and the status of your company, however in almost every case, there will be ways for you to improve your chances of securing the finance you need. As usual, before approaching any lender, we first suggest that you speak to your accountant or financial advisor, as each will have useful information based in your niche that can be utilised to further improve your chances of a successful loan application.

IT companies can use loans to invest in a range of technology, from hardware upgrades to software funding, and when pursuing innovation, the right type of loan can keep operations functioning smoothly while additional funds are spent on IT breakthroughs.

Technology upgrades and innovation pursuits often come with high investment costs, and without additional funding, can quickly become a strain on a business’s operational budget. If you are an IT business owner looking to invest in technology and innovation, keep reading, and below we’ll break down the primary areas where you can expect to develop a financial burden should they be your business model’s focus.

Investing in Hardware Upgrades:

If your business relies frequently on the latest hardware to deliver on its services, you will find a well utilised loan a great option for covering the upfront costs of any necessary purchases, spreading the expenses over more manageable repayment terms to help make daily cash flow more manageable. This might include anything from new servers and storage, cloud or physical, to new workstations for staff. Each upgrade can be necessary to improve staff productivity while helping to meet growing client demands.

To illustrate an example, if your IT business specialises in data analytics, it can be a good choice to invest more heavily into advanced servers that are capable of handling much larger data sets, ensuring faster processing and better service delivery. In other cases such as hardware investments, perhaps areas like networking equipment or the Internet of Things (IoT) devices may be a target for upgrades, helping to enhance your business’s internal operations while opening up new revenue opportunities to a new audience of clients.

Funding Software and Licensing Requirements:

Without software IT companies would not be able to operate, so ensuring you have the funding for, and access to, the latest tools and technologies will be important if you want your business to remain competitive within your industry. Software licenses for enterprise grade solutions are known to be costly in these cases, and short term loans can be considered if your business needs to acquire or renew a subscription, particularly for cloud management tools and cybersecurity software, and customer relationship management systems.

If you are developing your own software to either use internally or sell as a revenue stream, the right loan type can also help in your research and development processes, as well as any deployment efforts required. SaaS (Software-as-a-Service) providers for example can use financing to upgrade their platform and add new features that might appeal to a broader audience, ideally leading to better customer retention. Regardless of the intentions, if you invest strategically, you will be able to maintain your business’s competitive edge as you evolve within the industry.

Transitioning to Cloud Infrastructure:

In the current year the demand for cloud based services is at its peak, and if you are a business that is either transitioning to be solely in the cloud, or you are expanding your infrastructure to remain competitive, a loan can be an ideal solution to achieve this. Anything from the migration to scalable cloud options to covering the costs of server integration, transferring data, and setting up a secure, high-performance cloud system can all require significant upfront investment that may be disruptive to your business’s daily cash flow needs. By transitioning to cloud infrastructure, your business can greatly improve its flexibility in the services it offers, they are ultimately far more cost efficient compared to outdated large physical databases that many businesses still keep on site, offering far greater disaster recovery capabilities.

Strengthening Cybersecurity:

If you are running an IT company, you will be familiar with the importance of cybersecurity, and investing in advanced security measures whether that is through firewalls on site, or encryption technology to ensure your clients’ sensitive data remains safe to and from transit, helping to establish your brand as reliable. Loans can provide the necessary funding to implement the required security measures to achieve this without diverting any of your current resources away from other innovation pursuits, and means your business can continue to operate at full capacity while improvements are made.

Technological upgrades and innovative initiatives will always be a vital part of what keeps IT companies competitive, and allows them to continue improving their services. Loans can offer a means for investment into these areas of development, helping to drive industry change while keeping your business ahead of its peers.