How to Get a Business Loan

On this Page:

Intro to How to Get a Business Loan

What is a Business Loan?

What Can I Use a Business Loan For?

Types of Business Loan

How Do Business Loans Work?

Business Loan Calculator

Who Provides Business Loans?

What Are the Benefits/Risks Associated With a Business Loan?

How to Get a UK Business Loan

Eligibility Criteria

Conclusion

Intro to How to Get a Business Loan

This guide explains what business loans are and how to get a business loan in the UK. Anyone planning to start their own business will need to raise the necessary capital to make it happen. There are lots of ways entrepreneurs can go about this. They can approach investors with their business plans and ask them to invest, but this means giving up equity in the company. A loan is a common alternative that enables business owners to maintain complete control of their company and access the funding they need as soon as possible.

We'll show you how to get a UK business loan so you can access the funding you need as soon as possible. With this information, you'll be well on your way to making your dreams a reality.

"A loan for your small business can benefit growth in many ways."

Overview

- Business loans are a great way to get the funding you need for your business without giving up equity.

- You can use a business loan to finance start-up costs, purchase inventory or equipment, expand your facilities, or cover other operating expenses.

- To qualify for a loan, you will typically need to have good credit and a strong business plan.

You can get a free business credit report to determine your credit score. Some things you can do to improve or preserve a good score: ensure you are paying bills on time, and ensure your business accounts and company finances are in order; read more here.

- There are many different types of business loans available, so be sure to shop around and compare rates and terms before deciding.

- With a bit of research and planning, you can quickly get the business loan you need to succeed.

What is a Business Loan?

A business loan is a type of financing that can help with various expenses, including start-up costs, equipment purchases, inventory, and more. Business loans typically come with higher interest rates than other loans, such as personal loans or mortgages, because they are considered riskier. However, several business loan options are available, so it's crucial to compare rates and terms before choosing one.

"Compare all the necessary factors before deciding to ensure you get the best outcome."

One of the most important things to consider when taking out a loan is whether or not you will be able to repay the loan on time. If you cannot make your payments, you may end up defaulting on the loan, damaging your credit score and making it harder to get financing in the future. It's essential to create a budget and have a clear plan for how you will use the loan before you apply.

There are several different types available, including term loans, lines of credit, and SBA loans.

What Can I Use a Business Loan For?

If you're in the market for a business loan, you should know a few things. First, business loans are designed specifically to finance businesses. This means that any funds you borrow via a business loan must be used strictly for business expenses - you can't use it to fund personal spending, like a holiday or the purchase of a home. Second, lenders sometimes give business loans in the form of personal loans. This means that the lender is lending money to the person rather than the establishment. If you're considering taking out a loan for your small business, understand the terms and conditions before signing anything. You'll need to have good credit to qualify for a loan. And finally, you'll need to have a solid plan to get approved. If you can meet all of these requirements, you should be able to get a business loan with no problem.

Types of Business Loan

Secured Loans vs Unsecured Business Loans

Business loans are designed specifically for businesses, and any funds lent via a loan must be used for business expenses. You can't use a business loan to fund personal spending. Additionally, there are two types: secured loans and unsecured. Secured business loans require collateral, meaning you have to put up personal or business assets as security. If you're unable to pay back the loan as agreed, the lender can take control of the assets to cover the money you owe. However, with unsecured business loans, you may be personally responsible for the loan if your business cannot repay it. 

"Love Finance only provides unsecured loans, so your assets are never at risk."

How Do Business Loans Work?

Before asking how to get a business loan, you need to ensure that this is the correct funding method for you and your firm. Remember, loans will come with terms and conditions attached, and you need to be able to live up to the lender's requirements. When you take out a loan, a repayment period and interest rate will be specified. It's essential to consider both of these factors before making your decision.

Repayments
If you're looking to take out a business loan, it's important to understand the repayment schedule. This will determine how long you have to repay the loan, plus any interest. It's essential to make sure you can meet the repayment schedule before agreeing to the loan. In some cases, there may be a fee if you repay early. Love Finance is not a lender that ever charges early repayment fees.

"Splitting the cost of a loan into affordable monthly repayments allows your business more freedom."

Interest Rates

If you're looking for a business loan, keep the interest rate in mind. This is the amount of extra money you will pay the lender in addition to repaying the amount you borrow. For example, if you borrowed £10,000 with 5% interest, you would repay £10,500 in total. This can make a big difference in how easy it is to repay your loan. Work on getting a lower rate by shopping around for the best deal and making sure you have a good credit score. A lower interest rate will make it easier to repay your loan and show lenders that you're a responsible borrower. You'll be able to show lenders that you're a responsible borrower and have an easier time repaying your loan.

The amount of interest you pay will reflect how risky the lender thinks you are. In other words, how likely it is that you will be able to repay the loan on time. Lenders will view borrowers with good credit histories and those who can offer assets as security against a loan as less risky than those with poor credit histories and no security. However, there are still options available for those with a bad credit rating or no collateral. It may just come at a higher cost. So if you're considering taking out a loan for your small business, make sure you do your research and shop around for the best rate possible.

In order to qualify for a loan, you will need to have a good credit history and be able to offer assets as security against the loan. If you have a bad credit rating or no security, you may still be able to get a loan but the interest rate will be higher.

"Rates can be fixed or floating, Love Finance only offers fixed interest rates."

The rate lenders offer can be fixed or floating. A fixed-rate stays the same for the duration of your loan, meaning your monthly payments will never change. This can provide some stability for businesses that have tight budget restrictions. However, because lenders typically offer lower interest rates for fixed-rate loans, you may end up paying more in interest over the life of the loan.

Floating interest rates, on the other hand, can change over time.

So, for example, a lender might change floating rates if the Bank of England sets a new rate.

For an idea of what repayments will look like, try out our business loan calculator:

This business loan calculator is intended as an example only, and the lender should agree on exact payment terms before taking out a loan.

Who Provides Business Loans?

There are a range of options that offer business loans to consider. Banks are the most common source. However, there are other options, such as Community Development Finance Institutions (CDFIs), which offer finance to those who can't get it from banks. and online platforms that offer financing. There is also a growing number of peer-to-peer lending and other online platforms that can finance businesses. To get the best loan, it's important to compare rates and terms from a variety of lenders.

"There are more lender options now than in the past, giving you more choice and freedom."

Often, the best thing a small business can do to get a loan is go through a broker. A broker will work with you to get the best rates and terms for your loan. They will also be able to tell you what kind of documentation you need in order to apply. Once you have all of your materials together, the process of filling out an application and getting approved for a loan is usually not that difficult.

What are the Benefits/Risks Associated with a Business Loan?

There are many benefits of getting a business loan. Perhaps the most obvious benefit is that it can provide you with the funding you need to start or expand your business. A business loan can also help you improve your credit score, which can make it easier to get future loans and lines of credit. Borrowers may use business loans for a variety of reasons, including:

- Purchase inventory

- Hire additional staff

- Cover unexpected expenses

- Expand their operations

- Buy new equipment or machinery

- Finance the construction or renovation of a commercial space

- Fixed interest rates

- Flexible repayment schedules

- Protect cash flow

Small business loans can be an important source of funding. When used wisely, they can help you grow your business and achieve your long-term goals.

"A business loan is a quick, straightforward way of injecting more money into your business."

Of course, like any loan, business loans don't come without risks. If you can't keep up with repayments for any reason, you could face additional charges, and your business credit rating will suffer. Should you default on the loan altogether, your personal credit rating could also take a hit, and you face losing any assets you put up as security against the loan.

So, while business loans can be a great way to get the funding you need to grow your business, it's important to be aware of the risks involved and make sure you only borrow money that you can afford. Pay attention to the loan terms so that you can ensure you are making the right choice.

How to Get a UK Business Loan

If you're wondering how to get a business loan as a first-time business owner, don't worry; you aren't alone. Many entrepreneurs fear that lenders won't give them a loan because they have never run a business before. However, if you can show the lender a realistic plan, they will usually consider your application. Of course, if you have already started trading and have evidence that your business is growing, that will support your application. So don't be discouraged if you're starting from scratch - with a little effort, you can get the funding you need to get your business off the ground. Read more here about how to write a sound business plan.

Online lenders usually work differently to high street banks, and many will base their lending decisions mostly or entirely on your current credit score.

"Lenders may want to see a business plan for evidence that your company is growing."

Research your options and find the right lender for your needs. Be sure to understand all the loan conditions before you accept. You can approach a high street bank or an online lender, depending on what makes more sense for your business. Just make sure you compare rates and terms before making a decision. 

Eligibility Criteria

The business loan eligibility criteria are as follows:

1. Operational for at least 3 years

2. Have a good credit history

3. Sound financial statement

4. Good credit score

Moreover, the documents required for getting a business loan are as follows:

1. Business bank statements for the last 6 months

2. Financial statements of the business for the last 3 years

3. Personal financial statements of the business owner for the last 2 years

4. Tax returns of the business for the last 3 years

5. Proof of annual turnover

"Business loan enquiries will be subject to a soft credit search - this does not affect your credit score."

Conclusion

Some things to keep in mind when getting a business loan include knowing how much you need to borrow, having a good credit score, and understanding the repayment terms of the loan scheme. It's also important to shop around and compare rates from other lenders. By doing your research, you can ensure that you get the best deal.

If you're looking for a business loan, Love Finance can help. We work with a variety of lenders to get you the best rate possible. We'll also work with you to create a repayment plan that fits your budget. Complete our 2-minute loan application and find out what you can borrow. Contact us today to learn more about our services and how we can help you get the financing you need.