How to prepare for a business loan application

What should you expect when you apply for a business loan and what preparations should you make? Our brief guide covers all the essentials.

Nic Redfern Published on 12 September 2018. Last updated on 20 January 2021.
How to prepare for a business loan application

Doing a good job of applying for your business loan is important. With the right preparation for each step of the process, it needn’t be as daunting a task as you might expect. After all, banks do still want to lend to businesses that can show they are a good prospect.

Lending to businesses makes banks money. Remember - 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 business loans so that you can secure a great financing option for your burgeoning business.

Is a business loan the right option for your company?

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 for others it may be that another form of financing will be more appropriate.

For some, a business loan is simply not an option, and for others it may be that another form of financing will be more appropriate.

Let’s look at the essentials that are worth taking into account when deciding if a business loan will work for you. Remember:

  • Business loans are only available to over-18s.
  • Business loans tend to be available for between £1,000 and £50,000.
  • A business loan will usually need to be repaid over a period of one to 10 years.
  • If you are not a UK resident you might face additional barriers in securing a small business loan. There are some banks and loan providers who offer UK business bank accounts to non-UK residents, however, so there are certainly still options to explore here.
  • 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.

There are alternative sources of finance for your business that are worth considering. You might also just find that borrowing a large amount and being tied into monthly repayments, as well as paying interest, does not appeal to you or your business strategy.

So consider the alternatives before you get too deeply into the business loan application process.

Some alternatives to business loans:
  • Invoice financing
  • Overdrafts
  • Private investment
  • Government start-up funding
  • Crowdsourcing
  • Peer-to-peer lending

Is now the right time for a business loan?

Before getting started with your application, make sure you are clear how you are going to 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 general economy and the cost of borrowing. Interest rates fluctuate and will have a significant impact on 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?

Writing a 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 in and of its own right and can help you to 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.

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 market including market research
  • Details of your marketing strategy and costs
  • Details of your competitors
  • SWOT analysis
  • Your unique selling point
  • Operations and logistics
  • Pricing strategy
  • Financial forecast (include repayments of the loan!)
  • Cash flow forecast (include repayments of the loan!)

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.

To succeed at the interview stage you will need to be able to speak about your business with passion and enthusiasm.

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?
  • Can you justify the figure?
  • 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 and you should be familiar with your figures and your forecasts.

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.

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.

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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