Your essential checklist for preparing a business loan application

Our guide to making a business loan application includes an essential checklist on what to include in a business plan and how to manage the interview process.

Nic Redfern Published on 12 September 2018. Last updated on 06 July 2021.
Your essential checklist for preparing a business loan application

Making a business loan application can seem daunting but with the right preparation for each step of the process, it needn’t be as intimidating as you expect. After all, banks do want to lend to businesses that can show they are a good prospect.

Lending to businesses makes banks money, so it’s good to remember that they are not simply doing you a favour.

This is not to say that applying for a business loan is easy. It’s a lot of hard work and will require effort and commitment from you to ensure you get the right deal for your company.

Once you have determined that a business loan is the right route for you, the next job is to demonstrate that your business is a viable proposition and a ‘safe bet’ for the bank to invest in.

Below, we’ll take you through the process of applying for a business loan to help you secure great financing for your burgeoning business.

What should I know about business loans?

Before we get started, it’s important that you consider whether a business loan is actually the right choice for your unique situation. For some, a business loan is simply not an option and it may be that another form of financing will be more appropriate (see below for alternatives to business loans).

Key facts about business loans

  • Business loans are only available to over-18s.
  • Business loans tend to be available for both small and large amounts.
  • A business loan will usually need to be repaid over one to 10 years.
  • If you are not a UK resident you might face additional barriers in securing a small business loan. But there are some banks and loan providers who offer UK business bank accounts to non-UK residents, so it’s still worth exploring.
  • You will need to be able to keep up with monthly repayments, or risk significant fines, late payment charges, a negative impact on your credit score and potentially the loss of your business assets.

Some alternatives to business loans:

Before applying for a business loan

Before getting started with your application, make sure you are clear about how you will spend the money. Do you have a clear purpose for every penny of the money you are going to borrow?

It’s also worth checking whether it is a good time to be applying for loans in terms of the wider economy and the cost of borrowing. Interest rates fluctuate and will significantly impact the amount of money you will actually pay back to the bank.

Key questions to help you decide:

  • Is your business ready for investment?
  • Have you researched which lenders you’d like to work with?
  • Are you ready to expand?
  • Can you outline how you will spend the money?
  • Are your accounts in order?
  • Do you have a clear vision for your business?
  • Are interest rates reasonable?
  • Can you afford loan repayments?

What documents do I need to apply for a business loan?

Each lender will have different requirements but it is sensible to get the following in order before making a business loan application.

  • 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.

What to include in the business plan

One of the fundamental steps in applying for a business loan is writing a business plan. An impressive, clear and concise business plan will help you to secure funding.

Writing a business plan is a valuable exercise at almost any stage of growth. It can help you establish exactly what your business will do, or does, where you want it to go and how you will get it there.

Make sure you use simple language and keep your writing concise. Potential lenders will want to be able to get an impression of your business with a quick 15-minute read of your plan. That said, don’t get hung up on the length of the document, keep it clear and accessible but include what you need to.

The government provides a decent business plan template for those applying for their Start-Up Loans, which can be adapted for various other purposes.

» MORE: How to get a startup business loan

Elements to include in a business plan

  • An executive summary
  • Information about you and your experience
  • Overview of your business’s products or services
  • Information about your industry including market research
  • Details of your marketing strategy and costs
  • Details of your competitors
  • SWOT analysis (detailing your company’s Strengths, Weaknesses, Opportunities and Threats)
  • Your unique selling points
  • Operations and logistics
  • Pricing strategy
  • Financial forecast (include repayments of the loan)
  • Cash flow forecast (include repayments of the loan)

Steps in making a business loan application

Start by completing an application form either online or in person, which will include handing over the necessary documents required by the lender. You may also be invited to an interview where you’ll be asked to talk about your business.

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.

» COMPARE: Top 10 business loans

Business loan interview: what to expect

As well as providing a winning business plan, you’ll be expected to be able to speak about your business idea or your business growth strategy in detail during a face-to-face interview with the loan provider.

There are a number of questions you will be expected to answer. Here are some of the most common ones to help you to review and prepare:

  • Why do you need to borrow the amount you are applying for?
  • How will you spend the money?
  • How long do you want to borrow the money for?
  • Do you have any assets to secure the loan?
  • Can you talk about past successes?
  • Can you walk the lender through your financial plan?
  • Why will your business succeed where others have failed?

To succeed at the interview stage you will need to be able to speak about your business with passion and enthusiasm. Demonstrating a deep knowledge of your business plan can impress, so you should be familiar with your figures and your forecasts, as well as your industry or market.

Essentials to remember to bring with you to the interview:

  • Proof of address
  • Proof of identify
  • Insurance documents, if they are needed
  • A copy of your accounts
  • Copies of your tax returns

Most importantly, perhaps, you must be able to convince the lender that your business will make money and that you will be able to repay the loan.

Your business loan application checklist

  • Do your research - what types of business loans are on offer at the moment and what is the best lender for you?
  • Decide whether you want to apply directly or through a broker.
  • Find out what documents you will need to make the business loan application. These are likely to include a business plan, cashflow forecast, bank statements and company registration documents (see list above).
  • Get all your documents ready. Some you will write yourself, others will be supplied by your business bank or Companies House.
  • Get a trusted third party to proof-read all your documents for spelling and grammar.
  • Double-check that you have everything the lender requires.
  • When completing the application form, check every piece of information thoroughly. If applying online, save your application as you go.
  • Keep copies of every document you hand over to the lender. It is also a good idea to make a record of everyone you are in touch with from the lender throughout the application process including emails and phone calls.

Lastly, remember to ensure that you take out your loan with a provider that offers a good level of customer service and who you believe has a genuine interest in your success.

Having a good working relationship with the lender can make a big difference should times get tough. Don’t underestimate the value of having someone you can talk to at the end of the phone if you need to discuss funding.

» COMPARE: Startup loans

Image source: Getty Images

About the author:

Finance Director at NerdWallet UK and business adviser to SME's Nic is spokesperson for small and growing businesses with a strong understanding of the financial needs of business Read more

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