You don’t need to be a paperwork whiz to get a business loan in the UK; all you need is to comprehend the process and follow a few simple steps:
In order for a loan to actually help your business with what it needs, you have to know what those needs are. You can do this by answering the following questions:
- How much money does your business need to borrow?
- What is the money for?
- How quickly is the money needed?
With this information, you can determine the size and type of business financing that might work for your business, as well as narrow down the field of possible lenders.
Step 2: Understand Your Financial Position
Hand-in-hand with understanding your business’s needs is understanding your business’s financing eligibility. It’s all very well asking a lender for a million pounds, but if you can’t afford repayments, the lender won’t approve the loan. And even trying to make those repayments could bankrupt you. So it’s vital you acknowledge what’s possible given your circumstances. You need to know:
- Your business’s credit score
- The length of its operating history
- Its cash flow
- The details of any business assets that could be used as collateral
- Existing business debts
This information will allow you – and any lender – to assess how much your business can realistically afford to repay, and the potential risk (from a lender’s perspective) of giving your business a loan. Generally speaking, more established businesses, businesses with strong cash flow, few existing debts, assets that can be used as collateral, and businesses with good credit scores will find that they can borrow more, from more lenders, and at a lower cost than those without these characteristics.
Step 3: Consider Your Borrowing Options
Now comes the hard part: given what you know about your business’s needs and financial situation from steps one and two, you must narrow down all of the possible business financing options that exist in the UK to just those that make sense for you. That means finding financing that:
- Provides the amount of money your business needs to borrow
- In the timeframe your business needs it in
- To businesses with your financial profile
- With affordable repayments that work for your business
Many businesses find that searching by eligibility criteria (i.e. what credit score, income etc. a business needs to get a loan) is one of the quickest ways to determine lenders and loan products that might work for them. For example, if your business has bad credit, there is very little point in considering term loans from high street banks, as these almost always have a minimum credit score requirement.
But eligibility should not be your only concern. A loan that you can get approval for, but that doesn’t help your business with what it needs, is useless to you. That’s why considering loan amount, repayment type, repayment schedule, application processing times, and loan costs all matter too. And remember that every lender has different terms, so shopping around to find the best option given your constraints is essential.
Step 4: Gather Your Paperwork
Once you have a clear idea of which lender you want to apply to, you need to get your paperwork ready. Not all lenders ask for the same set of documents, but many have similarities, so it’s worth digging out:
- Business legal documents, such as articles of incorporation
- Latest business financial statements, including cash flow statement, balance sheet and income statement (if you don’t have up-to-date versions of these, you will likely need to get them)
- Business bank statements for at least three months
- Business tax returns for the past two years
- Proof of ownership of assets (if pursuing a secured loan)
- Proof of address and ID for the business owner(s)
- Personal tax returns for the business owner(s)
- Your business plan
Step 5: Complete an Application
Now you’re ready to actually apply for a business loan. Most lenders have simple, secure online application systems that allow you to upload your documents and submit an application entirely at your own convenience. However, in-person applications are possible too, if the lender you choose has physical locations nearby.
In either case, you need to make sure you have all of the documentation requested by your chosen lender, and you need to carefully complete the application form, truthfully and in full. Once you have done this, check it thoroughly, and submit it for consideration. Avoiding any mistakes or missing information in your application will prevent unnecessary processing delays.
Once received, most lenders will send an acknowledgement of receipt; it can then take anything from a day to several weeks to receive a reply (depending on the lender and their processes). And if your loan application is denied, don’t despair. Your business may well still be able to get a loan from another lender; it’s worth asking why your application was rejected, so you can better choose where to apply next time, thus increasing your chances of approval.
If you need more help understanding your business’s borrowing options, contact us. And read our blog for a range of useful information for UK businesses.