When and how to apply for a business loan

Melanie Richardson


Whether you are starting out or need to borrow money for the next level of growth, as a business owner you should understand if and when a business loan is right for you and your business.

Before you consider a business loan, you need to understand what funding sources are available, the application process and what lenders are looking for. You will need a strong business plan and a clear idea of what you need the loan for.

Types of business loan

There are two types of lending, secured and unsecured loans.  A secured business loan is when your business borrows money and uses an asset as security. If the repayments aren’t met and you default on payment, the lender can sell the asset to get their money back.

If a loan is unsecured, then the lender has no security on which to base the lending.  This type of loan is getting more and more unusual and at the very least, most banks will require a personal guarantee from the business owners.

How do business loans work?

Lenders will need to know how much you’re applying for and what you want the money for (eg. business expansion, capital expenditure, to purchase additional stock). Many lenders will ask to see your business plan or forecasts and will want to determine the financial health of your business. They’ll use this information to decide whether or not you’re a good candidate for a loan.

Finally, be prepared to answer questions about your business. The bank will want to know things like how long you’ve been in business, what your products or services are, and your future plans for the business. This should all be contained in your business plan.

Many lenders allow you to apply online and you can secure a loan in minutes. In simple terms, there are usually four steps to a loan application:

  • Complete an application form.
  • The lender runs a credit check.
  • The lender decides whether or not to offer you the loan.
  • If your application is successful, you can decide whether or not to accept the loan.

Key tips for applying for a small business loan:

  1. Get organised and gather your documentation which might include:
  • Your business plan
  • Business bank statements
  • Financial statements
  • Business tax returns
  • Any other legal documents
  • Company director proof of address and IDs
  • Check your credit score and build strong credit history
  • Research your loan options for the best deal
  • Make sure all of the information you provide is accurate
  • Don’t make multiple applications.  If you start applying to multiple lenders it may look like you are struggling to get approved by lenders and it may affect your chance to get a loan.
  • Apply in advance – if your business is struggling it will be more difficult to secure funding

Other financing options

There are other ways to secure financing for your business:

  • Friends and family
  • Business credit cards
  • Business overdrafts
  • Government and local authority grants
  • Start up and new business loans
  • Mortgages
  • Asset finance
  • Invoice finance, factoring and discounting
  • Trade, import & export finance
  • Peer to peer finance/lending
  • Crowdfunding
  • Angel and equity investment

Successfully applying for a business loan requires careful consideration.  You’ll need to have the right documentation, show the impact it will have on your business and its finances, prove you can repay it, carefully fill out the business loan application and potentially look at other alternatives.

If you’re looking to secure financing for your business, please do get in touch with your Swindells partner who will be able to advise you on the best course of action

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