How to get a business loan: a step-by-step guide

How much should you borrow? What will a lender look at? Do you need security? Will your credit history matter? And what happens if your bank says no?

Getting a business loan is about more than completing an application form. You need to understand why you need the money, how much you need, what you can afford to repay and which type of finance is right for your circumstances.

This guide takes you through the process step by step, from deciding whether you need a loan to preparing your application and understanding what happens after you apply.

A business loan might be right for you, but it isn't the only type of finance available.

The right option depends on your business, what you need the money for, how much you need and what you can afford to repay.

Not sure which BEF finance option is right for you?

Use our Find your finance tool. Answer a few questions about your business and what you're looking to achieve, and we'll help you find the finance options that could be most relevant to you.

This guide explains how the business loan application process works, what lenders may look at and what you can do to prepare before applying.

Before thinking about how much you can borrow, start with a more important question:

Why does your business need finance?

You might need funding to:

• Buy equipment or machinery
• Purchase stock
• Invest in your premises
• Recruit additional staff
• Manage working capital
• Support cash flow
• Invest in marketing
• Expand the business
• Enter a new market
• Take advantage of a growth opportunity
• Refinance existing borrowing

Being clear about the purpose of the borrowing helps you work out how much you need and which type of finance could be appropriate.

For example, borrowing to purchase equipment is different from borrowing to manage a temporary cash flow gap.

The British Business Bank recommends being clear about why you need funding and how you intend to spend it before accessing finance. It also highlights the importance of making sure you can repay debt finance.

So don't start with: How much will a lender give me?"

Start with: "What does my business actually need?"

Once you understand why you need finance, calculate how much you actually need.

It can be tempting to borrow the maximum amount available. But the more you borrow, the more you will have to repay.

Consider:

• The cost of what you're funding
• How much cash your business can contribute
• Your working capital requirements
• Existing borrowing and commitments
• Any reasonable contingency
• The proposed repayments
• What would happen if sales were lower than expected

For example, if you need £30,000 to purchase equipment, your application should be based on the actual cost of the equipment and associated costs.

Don't request £50,000 simply because you think a lender might offer it.

The amount you borrow should have a clear purpose and fit within your business's ability to repay it.

A business loan is only one type of business finance.

Depending on your circumstances, you could consider:

• Unsecured business loans
• Secured business loans
• Asset finance
• Overdrafts
• Working capital finance
• Start Up Loans
• Specialist business loans
• Grants
• Equity finance

A business loan involves borrowing money that is repaid over an agreed period, usually with interest and potentially other fees. Loans can be secured or unsecured.

Other types of finance work differently.

For example, an overdraft provides access to short-term funding through your business bank account, while asset finance can help you acquire equipment without paying the full purchase cost upfront.

The right option depends on what you are trying to achieve.

That's why it is worth considering your finance options before applying for a particular product.

Find your finance

Once you know what you need, look for a lender whose approach and products fit your circumstances.

There isn't one set of business loan requirements that applies to every lender.

Different lenders have different:

• Lending criteria
• Risk appetites
• Finance products
• Interest rates
• Fees
• Repayment terms
• Security requirements
• Approaches to assessing applications

A business that doesn't meet one lender's criteria may still be suitable for another.

The British Business Bank notes that traditional lenders typically look for a trading history and proven track record. It also highlights CDFIs as an option for businesses with limited assets, trading histories or track records.

This is particularly important if your business has circumstances that don't fit the traditional high street lending model.

Your credit history can form part of a business loan assessment.

For a limited company, a lender may look at the company's business credit history. Depending on the circumstances, they may also consider the personal credit history of the people behind the business.

For sole traders, personal credit history can be particularly relevant because the individual and business are not separate legal entities in the same way as a limited company.

Before applying, it can therefore be useful to understand your credit position and check that the information held about you or your business is accurate.

A poor credit history doesn't automatically mean that every lender will reject your application. However, it can affect the finance available to you and the terms you may be offered.

If credit history is a concern, read our guide to [business loans and credit scores] and our advice on [business loans with bad credit].

Lenders often want to see evidence of how a business has performed over time.

Your trading history can help demonstrate:

• How long you've been operating
• Your sales
• Your costs
• Your profitability
• Your cash flow
• How the business has performed through different periods

A newer business may have less financial information for a lender to assess, which can make conventional business finance more difficult to access.

The British Business Bank notes that early-stage businesses can struggle to access traditional debt finance because lenders typically want to see a trading history and proven track record.

However, that doesn't mean new businesses have no finance options.

The Start Up Loan programme is specifically designed to support people starting or growing an early-stage business and can provide finance where a traditional lender may require more trading history.

We'll look at the difference between a Start Up Loan and a business loan later in this guide.

A lender needs to understand your business and how the proposed borrowing fits into your plans.

Depending on the lender and your circumstances, you may be asked for:

• A business plan
• Cash flow forecasts
• Annual accounts
• Management accounts
• Business bank statements
• Details of existing borrowing
• Information about your business
• Details of what you intend to use the funding for

Your business plan should explain what your business does, who your customers are, how you compete and what you want to achieve.

Your financial forecasts should then demonstrate how the business is expected to perform and how the proposed borrowing fits into those plans.

The British Business Bank's guidance recommends preparing a business plan and cash flow forecast when applying for finance.

Your forecasts don't need to predict the future perfectly.

They should, however, be realistic and based on reasonable assumptions.

One of the most important questions to ask before applying for a business loan is: Can my business afford the repayments?

Borrowing can provide useful funding, but it creates a financial commitment that your business needs to meet.

When considering affordability, look at:

• The amount you want to borrow
• The interest rate
• Any fees
• The repayment term
• The expected monthly repayment
• Existing borrowing
• Other regular business costs
• Seasonal changes in income
• Unexpected costs
• Your expected cash flow

Don't judge affordability simply by looking at turnover.

A business can have strong sales but still have limited cash available after paying staff, suppliers, rent, tax and other costs. Your cash flow forecast should help you understand how the proposed repayments would fit alongside your other commitments. If the numbers don't work, borrowing more isn't necessarily the answer.

You may hear business loans described as secured or unsecured.

A secured loan uses an asset as security against the borrowing. Depending on the type of finance, this could include property, equipment or other assets. An unsecured loan doesn't use an asset as security.

However, unsecured doesn't necessarily mean there are no other obligations. Some lenders may require a personal guarantee, depending on the product and your circumstances.

The British Business Bank explains that secured lending can provide access to larger amounts or longer repayment periods, while the asset provided as security may be at risk if repayments aren't maintained.

If you want to understand the difference in more detail, read our guide to [secured and unsecured business loans].

Once you've identified a suitable lender, the application process will usually involve several stages.

Work out how much you need

Calculate the amount required and make sure you can explain how you've arrived at the figure.

Explain what you'll use the money for

Be specific. Explain what the funding will achieve and why it matters to the business.

Provide information about your business

You'll normally need to provide basic information about your business and your circumstances.

Provide supporting documents

Depending on the lender, this could include accounts, bank statements, forecasts, a business plan and details of existing borrowing.

Complete relevant checks

The lender may carry out credit, affordability and other checks as part of its assessment.

Your application is assessed

The lender will assess your application against its own criteria.

You receive a decision

The lender may approve your application, decline it or ask for further information.

Review the offer

If your application is approved, carefully review the interest rate, fees, repayment term, security requirements and any other obligations before agreeing to the finance.

Receive the funding

Once the required agreements and checks are complete, the funds will be released according to the lender's process.

The exact application process will vary between lenders and individual applications.

A Community Development Finance Institution, or CDFI, is a non-profit lender that provides finance using a relationship-focused approach.

The British Business Bank explains that this approach can allow CDFIs to look beyond a weak balance sheet or poor credit history and consider the fundamentals of the business and the people behind it.

BEF is a CDFI. We provide finance to small businesses across the North of England and consider applications based on the circumstances of the business.

Our Momentum Loan provides flexible business finance for established small businesses looking to grow, manage cash flow, invest or refinance existing borrowing.

The important point is not that specialist finance is automatically right for every business.

It is that the right lender depends on your circumstances.

Being turned down by your bank can be frustrating. But a bank rejection doesn't necessarily mean your business cannot access finance.

Banks have their own lending criteria and risk appetites. A business that doesn't meet the criteria of one bank may be considered differently by another lender.

The British Business Bank identifies several possible reasons for a business loan application being rejected, including a low credit rating, insufficient security, weak business plans or financial forecasts and a lender having a low risk appetite for the business's sector.

The first step is to understand why your application was declined.

If there is a weakness in your business or application, such as unrealistic forecasts or concerns about affordability, addressing it may improve your position. But if your application was declined because your circumstances don't fit that particular lender's criteria, another type of lender may be worth considering.

CDFIs are non-profit lenders that take a relationship-focused approach to finance.

The British Business Bank explains that this can allow CDFIs to look beyond a weak balance sheet or poor credit history and consider the fundamentals of the business and the people behind it.

BEF is a CDFI.

We provide finance to small businesses across the North of England, including businesses that may not fit traditional high street lending criteria.

Been turned down by your bank?

Every business is different.

Some businesses have years of trading history behind them. Others may have experienced a difficult period but have a viable plan for moving forward. Some may have strong assets, while others have limited security available.

As a CDFI, BEF takes a relationship-focused approach to lending.

Our assessment considers the circumstances of the business, the purpose of the borrowing and its ability to repay the finance.

This doesn't mean every application will be approved. It means that we consider the wider picture rather than assuming every small business should fit the same profile.

If you're unsure which BEF finance option could be appropriate for your circumstances, our Find your finance tool can help.

A Start Up Loan and a business loan are different types of finance designed for different circumstances.

A Start Up Loan is a government-backed personal loan for business purposes, delivered through the British Business Bank's Start Up Loans programme.

The programme provides loans from £500 to £25,000 per founder, with eligibility depending on the scheme's criteria. It is designed for people starting or growing an early-stage business. Successful applicants can also receive 12 months of free mentoring.

Because a Start Up Loan is designed for new and early-stage businesses, you don't need the same established trading history that may be expected for conventional business finance.

A business loan is a broader form of finance for businesses. It can be used for purposes such as growth, working capital, investment or other business needs.

The amount available, interest rate, repayment term and other requirements depend on the lender and product. For an established business looking for finance, a Small Business Loan may be more appropriate than a Start Up Loan.

Not sure which applies to you?

There isn't one standard timescale for getting a business loan.

How long the process takes can depend on:

• The lender
• The type and amount of finance
• The complexity of your application
• Whether you provide all the required information
• Whether further information is needed
• Whether security needs to be assessed
• The checks required before a decision can be made

A straightforward application with complete information may progress differently from a more complex application requiring additional assessment.

Rather than focusing only on speed, make sure the finance is appropriate for your business and that you understand the terms before agreeing to it.

Being prepared can make the application process clearer and help you understand your own financial position before approaching a lender.

Use this checklist before applying for a business loan.

• Know how much you need: Have a clear figure and be able to explain how you've calculated it.
• Know what the money is for: Explain what you want the finance to achieve and why it matters to the business.
• Understand your cash flow: Know what money is coming into and going out of the business and how repayments would fit into your cash flow.
• Check your credit position: Understand your business and personal credit position where relevant.
• Prepare your financial information: Have your accounts, bank statements and financial forecasts available where required.
• Prepare your business plan: If the lender requires one, make sure it clearly explains your business, customers, market, plans and financial expectations.
• Understand your existing borrowing: Be ready to explain existing loans, overdrafts or other financial commitments.
• Consider your finance options: Don't assume your bank is your only option.
• Think about affordability: Make sure the proposed repayments are realistic for your business.
• Be honest about your circumstances: If your business has experienced difficulties, don't hide them.

Accurate information allows a lender to assess your application properly.

There are no shortcuts that guarantee approval.

The best way to strengthen a business loan application is to give the lender a clear, realistic picture of your business, the reason for borrowing and how the finance will be repaid.

Before applying:

• Be clear about how much you need.
• Explain exactly what the money will fund.
• Make sure your forecasts are realistic.
• Understand your cash flow.
• Have your financial information ready.
• Understand your existing commitments.
• Check your credit position.
• Don't borrow more than you need.
• Make sure repayments are affordable.
• Choose a lender whose criteria fit your circumstances.

The aim isn't to make your business look perfect.

It is to present an accurate picture of where your business is now, where it wants to go and how the proposed finance fits into that plan.

What do I need to get a business loan?

Requirements vary between lenders. You may need information about your business, accounts, bank statements, financial forecasts, a business plan, details of existing borrowing and information about how you intend to use the money. Credit and affordability checks may also form part of the application.

How difficult is it to get a business loan?

It depends on your circumstances and the lender. Credit history, trading history, financial performance, cash flow, affordability, security and the purpose of borrowing can all be relevant. There is no single set of business loan requirements that applies to every lender.

Can I get a business loan with bad credit?

A poor credit history doesn't automatically mean every lender will reject your application. However, it can affect your finance options. Different lenders have different criteria, so it is important to understand why an application was declined and whether another form of finance may be appropriate.

How much can I borrow with a business loan?

There is no universal maximum. The amount available depends on the lender, product, purpose of the borrowing and your business's circumstances. You should work out how much you actually need and what you can afford to repay rather than simply borrowing the maximum amount available.

Can a new business get a business loan?

New businesses can find conventional business loans more difficult to access because they have limited trading history and financial information. However, finance designed for early-stage businesses is available, including Start Up Loans, subject to the scheme's eligibility criteria.

Can a sole trader get a business loan?

Yes. Sole traders can apply for business finance. Because a sole trader and their business are not separate legal entities in the same way as a limited company, a lender may consider personal financial information and credit history as part of its assessment.

Do I need a business plan to get a business loan?

Not every lender requires a business plan, but it can be useful when applying for finance. A good business plan explains what the business does, who its customers are, how it operates and what it wants to achieve. Financial forecasts can then show how the proposed borrowing fits into those plans.

Do business loans require security?

Some do and some don't. A secured loan uses an asset as security, while an unsecured loan does not use an asset as security. However, an unsecured loan may still involve other requirements, such as a personal guarantee, depending on the lender and product.

How long does it take to get a business loan?

There is no standard timescale. It depends on the lender, the type of finance, the complexity of the application and whether all the required information is available. Applications requiring additional checks or information can take longer.

What happens if my bank rejects my business loan application?

A bank rejection doesn't necessarily mean another lender will reject you. Banks have different lending criteria and risk appetites. Start by understanding why your application was declined. You can then address any weaknesses and consider whether another lender or type of finance could be more appropriate.

Getting a business loan isn't simply about finding someone willing to lend you money.

The right finance depends on why you need it, how much you need, your business's circumstances and what you can afford to repay.

BEF offers a range of finance options for businesses, including Start Up Loans and finance for established small businesses.

Not sure which one is right for you?

Our Find your finance tool asks you a few questions about your business and your funding needs, then helps you identify the BEF finance options that could be most relevant.