How to get a business loan

If you need money to grow your business, pay for running costs, buy new equipment or do anything else in your business that needs an injection of funds, you may want to get a business loan. 

There are lots of different loan options, so before you apply for one, you need to think about how much you need to borrow, what you’ll use the money for and how you want to repay it. Your answers will help you choose the type of loan that would suit you best. 

You should also consider whether you want your interest rate to be fixed or variable, meaning it could go up or down.

Before you go ahead, it’s also a good idea to do the following:

• Get a copy of your business credit report to make sure it’s accurate and see whether you need to improve it, as lenders will look at your credit score when deciding whether to lend to you. Your report will also influence how much you can borrow and the interest rate charged by lenders. Additionally, it is advisable to check your personal credit rating, as lenders may consider this as well

• Settle any existing debts if possible and recover any outstanding payments owed to you in order to place your business in the best financial position before applying for a loan. Clearing debts will also contribute to boosting your credit score.  The riskier a lender thinks you are as a borrower, the higher the interest rate it will charge, so it’s worthwhile ensuring your business is in the best shape it can be

• Make sure your accounts and other financial records are up to date. Lenders will review these to assess the health of your business and how much you can afford to repay

• Use the tools available on many lenders’ websites to determine how much you could potentially borrow and the monthly repayments for borrowing different amounts over various periods. This will enable you to apply for a realistic amount and show that you are a responsible borrower. Additionally, you can assess the likelihood of loan approval without impacting your credit score

• Gather together the documents and information you need before you apply. The exact requiements will depend on the lender, but could include:

  • Business bank statements, usually for the last six months

  • Annual accounts

  • Tax returns

  • Legal documents, such as contracts or licences

  • Proof of identity and address for you and the other business owners, if there are any

  • Details of any existing loans or credit lines you have

  • Details of any assets you can offer as security for the loan

  • Your business plan

  • Projections of your income and expenditure

  • Balance sheets

Note: Your business must be based in the UK and have been trading for at least two years before you apply.

Once the lender has assessed your application, it may present you with a loan larger or smaller than your original application and a different interest rate than the one advertised. The representative APR (Annual Percentage Rate) displayed is the rate that at least 51% of borrowers receive on a particular loan size.

How long does it take to get a business loan?

The speed at which a loan is granted depends on the lender. Some lenders can provide a decision in under an hour, while others may take a few days or more. After receiving approval and completing any required paperwork, you could receive the funds within hours, or it may take up to a couple of days.

Certain types of loans, such as government-backed Start Up Loans, may take longer to process - decisions typically take a few weeks or even months.

What types of business loans can you get?

Business loans can be secured or unsecured. In the case of secured business loans, you provide an asset, such as a property, as security for the loan. If you can’t repay the loan, the lender can sell the asset to recover its funds. Due to the reduced risk, secured loans typically have lower interest rates. Additionally, a secured loan may allow you to borrow more than an unsecured loan.

A wide variety of loan types are available, depending on the amount needed, the purpose of the loan, the desired repayment period, and the nature of the business.

For example, a line of credit, such as a business overdraft obtained through your business bank account, enables you to borrow money as needed, with interest payable only on the borrowed amount. Alternatively, if you require a larger sum for a specific purpose over a short period, a bridging loan might be preferable.

Other types of business loans include invoice financing, asset refinancing, startup loans, merchant cash advances and mezzanine finance. 

To learn more about the types of business loans available, visit our How Business Loans Work guide. 

How to compare business loans

As well as comparing the interest rate of a business loan, it’s important to look at any fees that apply so you can compare the total cost of a loan over the full term. You may also want to consider how flexible different loans are and how quickly they let you access the borrowed sum.

Bear in mind that while a longer-term loan may make repayments more manageable, it will result in higher overall interest payments than a shorter-term loan with the same interest rate.

Visit our business loans comparison page to see some of the available deals.