How to Apply for a Business Loan

If you’re ready to apply for a business loan, then it helps to be prepared. You don’t want your application to be turned down simply because you haven’t got the correct information to hand, or because your business is not in the best possible shape. Learn the next steps to take.

Sarah Bridge Published on 11 March 2021.
How to Apply for a Business Loan

Starting or running your own business requires many things including commitment, hard work and money. While you can supply the commitment and do the hard work yourself, you may need outside help in raising money, and a popular way of doing this is by getting a business loan.

So, how can you get a business loan? We discuss some of the key things to consider when applying for a business loan.

What to ask yourself when applying for a business loan

Before you can decide on what business loan to apply for you will need to consider your borrowing requirements. This will include:

  • Why you need a business loan.
  • How much you want to borrow.
  • How long you would like to borrow it for.
  • How you are going to repay the loan.

>>MORE: How Business Loans Work

Should I apply directly or through a broker?

Once you have decided how much money you need to borrow and for how long, you will need to apply for a loan directly from a lender such as a high street bank, or through a broker who will be able to show you the options from different lenders.

An experienced broker can also help with the application process and make sure that you have all the necessary documents. They will let you know how long applications are taking with different lenders and can alert you to new products coming onto the market or loans that are about to be discontinued.

What are the steps in applying for a business loan?

The process of applying for a business loan will vary between lenders but usually follows the following steps:

  • You decide to go ahead with your business loan application.
  • You complete an application form either online or in person, which will include. handing over the necessary documents required by the lender.
  • The lender will run a credit check, most likely on your business and personal accounts.
  • The lender will then decide whether to offer you a loan and will give you information such as the interest rate and the amount you can borrow.
  • If your application is successful, you can decide whether to accept the loan.

Applying for a loan will leave a mark on your credit report. Before submitting a formal application you may want to make the most of the many online eligibility checker tools available. These will carry out a ‘soft search’ which will let you see your chances of being accepted for a business loan without affecting your credit score.

What will lenders want to know about my business?

All lenders vary in their loan criteria, but generally they are likely to want to know:

What your business does, how it is managed, who owns it and what kind of track record the managers have

New businesses will find it harder to get a business loan if there is no track record. Banks generally prefer companies that have been successfully trading for a while.

What the managers have invested in the business

Lenders tend to prefer that the owners or management team have taken some of the risk themselves and are personally invested in the business.

What assets can be used as security for the business

Owners or directors may have to issue personal guarantees or put-up assets such as their homes as security for the loan. The lender could take the assets if the loan repayments are not made.

What other borrowing commitments the business has

Lenders will want to know what other demands on the company’s finances there are and whether the business will be able to meet all its financial commitments.

To answer these questions lenders are also likely to ask for:

  • A business plan which details how your company plans to repay the loan.
  • A cashflow forecast which shows how much money could be coming in and out of the business every month.
  • Details of your business assets and liabilities, including any income from other sources.
  • Monthly bank statements.
  • Financial accounts going back several years showing profit and loss, balance sheet and cash flow statements.
  • Management accounts showing the overall health of the business.
  • Company documents such as Companies House registration, shareholder and directors’ details and proof of address and ID.

Before making your application, make sure you have answered every question on the application form and include all the information asked for, clearly marked.

What should I ask about the business loans on offer?

Taking out a business loan is a big decision and one that should not be taken lightly. Before you apply for or accept a business loan offer, you should make sure that you know:

  • The interest rate on the loan.
  • Whether the interest rate is fixed or variable (also known as floating).
  • How long the loan is for.
  • If you will incur any extra charges if you repay the loan early.

Your broker or an online comparison site can help you compare loans from different lenders so you can make sure you have the right one for you and your business.

>>MORE: Compare Business Loans

Image Source: Getty Images

About the author:

Sarah Bridge has been writing about business and finance since 2000. She was formerly Deputy Editor, Personal Finance, The Mail on Sunday and was previously the paper's Leisure Correspondent. Read more

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