Your guide to getting a business loan
Discover the steps to take to increase your chances of getting a business loan.
Business loans are a popular way for small businesses to borrow the funds they need to invest in new premises, upgrade equipment or boost cash flow.
But before you apply for a business loan, it’s important to understand the likelihood of qualifying and the steps you can take to increase your chances of approval.
Key takeaways
You should only apply for a business loan if you’re confident your business can comfortably afford the repayments
It’s sensible to obtain a copy of your business credit report before you make a loan application
Always check the eligibility criteria and terms and conditions of your loan so you know where you stand
If you’re rejected for a business loan, find out why and leave at least three months before applying again
These unsecured and secured loans could help you grow your business, cover running costs or even fund a new company.
How to apply for a business loan
It’s often easiest and quickest to apply for a business loan online, but some lenders also accept applications over the phone or in branch.
When filling in the application form, you need to provide details about yourself and any other owners of the company, along with information about the business you run. This can include annual turnover, projected annual turnover, and the date your business started trading. You must also detail how much you wish to borrow and what you plan to use the funds for.
How to get approved for a business loan
If you’re ready to apply for a business loan, take note of the following steps to increase your chances of acceptance.
1. Have a business plan in place
Ensure you have a robust business plan ready. Many lenders ask to see this before agreeing to offer you a loan. It can reassure them that your business is a sound investment and give them a clear idea of how you plan to repay the loan.
Your business plan should include financial projections, such as balance sheets, income statements and cash flow forecasts for the next three to five years.
If you haven’t yet written your business plan, our free business template and guide can help you.
2. Work out how much you need to borrow
Assess how much you need to borrow. You want to borrow enough to support your business plans and reduce the chances of needing to apply for a second loan. However, if you borrow too much, you could struggle to repay it and end up paying more interest than necessary.
3. Consider how long you need to repay your loan
It’s also important to think about how long you need to pay back the loan. Choosing a longer term reduces your monthly repayments, but also means you pay more in interest overall. If you can reduce the term, you’ll save money in the long run, but only do this if you are confident your business can meet the monthly loan repayments.
4. Check your business credit score
Your business credit score can affect your chances of approval. That’s why it pays to get a copy of your business credit report in advance, so you have a better understanding of what lenders see when they review your application for a business loan.
Once you have a copy of your business credit report, check it for errors and get any mistakes corrected as soon as possible. Then check your business’s credit score.
If your business has a high credit score, a lender is more likely to accept your loan application. But if your company’s credit score is low, it could be worth trying to improve it. You can do this by paying bills on time, filing accounts in full, and updating HMRC and Companies House if any of your business information changes.
It’s also sensible to check your personal credit score because lenders may consider this, too, particularly if your business is new.
5. Make sure your finances are in order
If you have outstanding debts, it can be worth settling these before you apply for a business loan. This can improve your business credit score but also enables you to free up cash that can go towards your new loan repayments. It’s also wise to recover any outstanding payments owed to you, so your business is in the best financial position before you apply for a loan.
6. Review your accounts
Lenders often ask to see your most recent financial statements, so ensure these documents are up to date and accurate. If it’s been more than two years since you last filed your business accounts, you may have to submit new filings.
7. Check your eligibility
Before applying for a business loan, it’s worth using an eligibility checker. Many lenders offer these to give you an idea of your chances of approval for a loan without affecting your credit score. Because these eligibility checkers only use a soft credit check, they don’t leave a mark on your credit file.
8. Read the terms and conditions
When comparing loans, read the small print carefully. This should flag up any fees you might have to pay — either when you apply for the loan or if you repay the loan early — and it should tell you if you need to sign a personal guarantee. This is a legal agreement that means you become personally liable for the loan if the business can’t repay it.
9. Prepare your documents
Once you’ve decided on the business loan you want to apply for, make sure you have the necessary documents to hand. These can include bank statements, financial accounts, tax returns, your business plan, proof of ID and address for the business owners, and details of any assets if you’re applying for a secured loan.
10. Apply in full
The final step is to fill in the application form. Once completed, check it over for mistakes and submit it. Then wait to see if you’ve been approved.
If your application is successful, the loan amount offered could be smaller than you requested, and the interest rate might differ from the one advertised. Lenders only have to offer the advertised annual percentage rate (APR) to 51% of successful applicants. The remaining 49% of applicants may pay a higher rate.
How long does it take to get a business loan?
Although you can often complete an online business loan application in around 10 to 30 minutes, the length of time it takes to get a decision varies depending on the lender.
Some lenders can give you a decision within an hour, while others might take a few days or even weeks. You could face a lengthier application process if you apply for certain loans, such as a government-backed Start Up Loan, or if you apply for a loan with a traditional bank rather than an online provider.
Once a lender approves your loan, it could transfer the funds into your business bank account the same day, or within a couple of days.
What to do if you’re rejected for a business loan
If a lender rejects your application, it’s important not to panic. Each lender uses different criteria to assess applications, so just because one lender has turned you down, it doesn’t mean they all will.
However, before you make another loan application, take a step back and consider the reason for your business loan rejection. If the lender hasn’t explained why, it’s worth asking. Common reasons for rejection include a poor credit score, a limited trading history, not meeting the eligibility criteria, or leaving out crucial information on your application form.
If your credit score is low, it’s worth taking steps to improve it before you apply for another loan. You should also double-check the eligibility criteria – some lenders ask that you’ve been trading for a few years or have a minimum annual turnover, for example. There’s no point applying if you don’t meet these requirements.
Following a rejection, it’s best to avoid applying for another business loan for at least three months, preferably six. Applying for multiple loans in a short space of time can make you look desperate for credit, increasing the likelihood of another rejection.
Common mistakes to avoid when applying for a business loan
Some of the most common mistakes to avoid when applying for a business loan include:
Borrowing more than you need: A larger loan means higher monthly repayments and higher interest charges over time. This could put more financial strain on your business
Applying for the wrong type of loan: Compare loan options carefully to ensure you apply for one that aligns with your business needs. There’s no point applying for a secured loan if you don’t have a suitable asset to use as security
Inadequate preparation: Submitting up-to-date financial statements and accurate information is critical
Not meeting the eligibility criteria: If you don’t meet the eligibility requirements, the lender will reject your application
Overlooking fees and charges: It is easy to miss early repayment charges and application fees if you don’t read the small print properly
FAQs
What factors do lenders consider when they assess applications?
Lenders consider a variety of factors to help them determine whether your business could afford to repay the loan. These include your business’s
Creditworthiness
Annual turnover
Trading history
Levels of debt
Reason for borrowing money
Who is eligible for a business loan?
Eligibility criteria vary depending on the lender, but you must be at least 18 years old and your business must usually be registered in the UK.
Some lenders also require you to have been trading for at least a year, and others set minimum annual turnover requirements. You might also need to hold a business bank account with the provider before you can apply for a loan.
How easy is it to get a business loan?
Securing a business loan depends on several factors, including your business’s credit history and financial stability, as well as the size of the loan requested. If your business has a solid credit history, has been trading for several years, and has a strong track record of profitability and consistent revenue streams, you should find it easier to apply for a business loan compared to startup businesses or those with poor credit.
Can I get a loan for a new business straight away?
Yes, it is possible, but you’re likely to have fewer lenders to choose from. Because your business has a limited trading and credit history, you might not be able to borrow as much as you had hoped, and interest rates could be higher.
One option to explore is the government-backed Start Up Loan, because this is designed to help new businesses. Alternatively, a number of traditional lenders offer their own startup loans.
Can I still apply for a business loan with bad credit?
Yes, you can apply for a business loan with bad credit, but again your options are likely to be more limited and you may end up paying more in interest. It’s a good idea to use a business loan eligibility checker before you apply because this gives you an indication of which loans you’re more likely to qualify for without harming your credit score further.
What’s the minimum credit score for a business loan?
There’s no set minimum credit score because all lenders have different qualifying criteria. However, generally, the lower your credit score, the harder it is to get a loan. Business credit scores usually range from 0 to 100, and a score of between 0 and 40 is generally considered high risk.
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About Rachel Wait
Rachel has spent the majority of her career writing about personal finance for leading price comparison sites and the national press, including for the Mail on Sunday, The Observer, The Spectator, the Evening Standard, Forbes UK and The Sun.