A business loan can help to smooth cashflow, fund growth, or buy new equipment and tools.  

Plan and prepare 

Before applying, it’s important to work out what exactly you’ll need the funding for, and how much you need to borrow. That’s because banks will want to be sure that the money will be put to good use, and that you’ll be able to repay it. 

Generally, lenders will need the following documents: 

• Last filed business accounts 
• Open Banking connection or 
• Bank statements (business only) 
• Proof of any assets and liabilities (debts) 
• Details of how you'll spend the money (purpose) 

If you're a new business without trading history, you might need stronger business plans, and may require personal guarantees or collateral. 

You’ll also need to be clear about your business model and how the finances work. You should be honest about any challenges you face, and give lenders the right insights so they can offer you the best solution. 

It’s also important to avoid waiting until the last minute to apply because emergency funding is likely to carry stricter terms, and to be more expensive.  

Check your credit score 

If you’re a sole trader or a smaller business, your personal credit score will be important to banks when deciding whether to offer you funding. So, it’s important to check your report, and to make sure the information is correct and up to date. 

You can get your free TransUnion credit score from TotallyMoney, and your Equifax score from CredAbility, and if you spot something that doesn't look right, then you can make a change, or raise a dispute. 

A poor credit score might not stop you from being able to borrow, but it might limit your options to more expensive loans.  

Choose the right loan 

When doing your research, you’ll find there are a range of different loans to suit different business needs. So, it’s important to pick the right one. 

• Term loans generally work like personal loans, and give you a lump sum to repay over months or years, and they can be a good option for big purchases like equipment.  
• A business credit line works more like an overdraft, and lets you borrow up to a limit, with you only needing to pay interest on what you use. So, they can be useful for managing cashflow. 
• Asset finance helps you to buy equipment, with what you buy acting as security.  
• Invoice finance gives you money against unpaid customer invoices. 
• And government-backed loans can offer lower rates but often have strict eligibility rules. 

Research lenders 

It’s important to do you research and to shop around before you apply. Making multiple applications could show up on your credit file, acting as a red flag as you might look credit hungry. 

You should look at a range of providers, and not just your existing bank. Smaller, specialist, and online lenders might offer you better rates and more flexibility, as they compete for you custom. They might also be able to offer more personalised solutions to fit your needs. 

Some banks will use open banking to assess your business finances, as it gives them a clearer picture of how your business works. This can also speed up the process, and help you to unlock cheaper rates.  

Submit your application 

Once you’ve found the right loan, you’ll need to start the application process. Online ones are usually quicker, but face-to-face ones might give you a better opportunity to discuss your needs. 

It’ll also depend on your level of borrowing and business needs, and can vary from same-day funding to several weeks.  

Review the offer carefully 

If approved, it’s important to read the agreement thoroughly before signing. You’ll want to make sure that what is being offered really is what you need, and that you’ll be able to keep up with repayments.  

Keep any eye out for any hidden charges or costs, such as early repayment and arrangement fees, and factor them in when comparing loans. 

Plan your repayments 

Remember that late payments can damage your credit score, or lead to additional charges, and even repossession. So, it’s important to stick to the repayment plan, and to factor them into your business forecasts, making sure you have enough money in the bank during quieter periods. 

Spend the money as planned 

Stick to the original plan you set out when applying for the loan — if you don’t it might make budgeting more difficult, and you might even break the terms of your borrowing. 

Keep receipts and records, and if you’ve borrowed for growth, keep track of business performance. It could help with future funding. 

Maintaining a good relationship with the bank and repaying your loan as per the terms of the agreement can help boost your credit rating, and make it easier and cheaper to borrow in future.