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Starting or running your own business requires many things, including commitment, hard work and money. While you can supply the commitment and put in the hard work yourself, you may need outside help in raising funds. A popular way of doing this is by getting a business loan.
When applying for a business loan, there are a number of factors to bear in mind, from what kind of loan you want and how much you need to borrow to what you can do as a business to try to ensure that your application is successful.
It can all sound a bit overwhelming. That’s why we have put together a detailed guide on how to get a business loan in the UK.
» MORE: What is a business loan?
Applying for a business loan: step-by-step
While the actual process of applying for a business loan will vary between lenders, you will usually need to:
- Decide if you want an unsecured or secured business loan, how much you want to borrow, and for how long.
- Compare business loan providers to find the best option for your organisation.
- Complete an application form either online or in person, which will include handing over the necessary documents required by the lender, including a business plan.
- Wait for the lender to assess your application. This may involve both personal and business credit checks. 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 you are happy with the terms of the offer, decide whether to accept the loan.
Can I get a business loan?
Although each lender will have their own borrowing criteria, to be eligible for a business loan you will typically need to:
- be over 18 years old
- have a business based in the UK
- satisfy the lender’s credit checks
Depending on the type of business, the lender may check both your personal and business credit scores. Your personal credit score will likely be more important if you are a start up with a limited trading history.
Bear in mind that 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.
» MORE: How do business loans work?
What type of business loan do I want?
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
- for how long you would like the loan
- how you plan to repay the loan
The answers to these questions should help inform what type of business loan you want. Broadly, traditional business loans – where you borrow a lump sum of money, and repay it over time, with interest – come in two forms:
- Unsecured business loans: With unsecured business loans, you borrow a sum of money without needing to provide an asset as security against the loan. This means you will likely require a better business credit score, and will not be able to borrow as much than when applying for a secured loan. You may also face a higher interest rate, as borrowing without an asset is more risky from the lender’s perspective.
- Secured business loans: With a secured business loan, you will need to provide an asset, such as property or equipment, as a security. This means you may be able to access lower interest rates, longer loan terms, and higher levels of borrowing than with an unsecured loan. However, if you are unable to keep up with your repayments and you default on the loan, you may lose the asset you have used as collateral.
Under these two umbrellas come a number of business loans used for specific purposes, such as start up funding.
How much can I borrow with a business loan?
How much you can borrow with a business loan depends on a range of factors, including:
- whether you are applying for a secured or unsecured loan
- your business’s financial and credit history
- how long you want to borrow for
While it varies from lender to lender, the smallest amount you can borrow with a business loan is typically £1,000. The maximum amount is more variable: unsecured loans can be capped anywhere between £25,000 and £500,000, while secured loans can be worth millions of pounds.
Should I apply directly or through a broker?
Once you have decided what type of loan you want, 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 business finance broker who will be able to show you the options from different lenders – although may need to factor in any fee or commission.
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 on to the market or loans that are about to be discontinued.
What documentation will business loan lenders require?
To process your business loan application, your chosen lender will likely ask for a combination of the following documentation:
- a business plan, which details how your company plans to repay the loan
- a cash-flow 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, shareholders’ and directors’ details and proof of address and ID
Before making your application, make sure you have answered every question on the application form, including all the information asked for clearly marked.
How to compare business loans
Taking out a business loan is a big decision and one that should not be made 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
- any extra charges you will incur if you repay the loan early
- the reputation of the lender and its customer service
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.
Dive even deeper
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