How to get a business loan

How to get a business loan image

Applying for business finance can be daunting. Many lenders are vying for borrower attention, but how do you know which loan is right for your business? And how can you go about getting a business loan?

This blog lists everything you need to know when applying for a business loan.

Want to cut to the chase? Find and compare business loans using our free loan comparison tool.

Why apply for a business loan

Business owners apply for a business loan for many reasons. Research found that 2.4% of surveyed business owners spent their loans on business expansion, 29.4% purchased equipment, and 28.6% spent it on marketing and advertising costs.

So, whatever you want to spend your loan on, it's valid as long as you plan to spend your working capital on your business.

Business loans can unlock growth opportunities for any SME, helping you reach your goals faster in an affordable and convenient way. Loans are available to all kinds of businesses, from startups to established ones and for businesses with good and bad credit.

What type of loan should I apply for?

Which loan type is right for you depends on a few factors - what you're using the money for, how much you need, how long you need it for and whether you meet the eligibility criteria.

With many different loan types on the market, you’ll likely find one that specifically meets your needs.

For example, apply for a cash flow loan if you need to improve your cash flow. Consider invoice financing if you want to access an advance on your invoice payments, or a merchant cash advance might be more suitable if you're a business taking credit and debit card payments from customers.

With so many alternative lenders in the marketplace, borrowers are perfectly positioned to take advantage of competitive rates. As alternative lenders are more flexible and likely to look at the bigger picture of your business (unlike traditional lenders), lending has become more accessible for every business owner.

Applying for a business loan isn’t your only financing option, you can always approach investors to raise working capital without needing to repay. Instead, you would give away equity in your business.

How to get a loan for a business

Indeed of diving straight into the application process for the first eligible loan you find, consider following these steps to find the best fit for your business.

First, figure out how much you need to borrow

Pinpoint how much money you need to borrow and how much you can afford to repay over what period. Knowing this information means you can confidently continue with a loan offer when it's presented to you.

It can be very easy to get caught in a debt cycle, so always take time to understand your income and expenses to clearly work out what repayments you can comfortably afford.

Next, compare business loans

Comparing what’s out there is a quick and simple way to reduce your research time. You don’t have to worry about missing out on a better loan offer by comparing lenders and loan types in one place.

You can use a free loan comparison tool like ours to understand your options in seconds. Share what you’re looking for, such as repayment terms, loan amount, loan purposes, etc., and we’ll match you instantly with eligible finance products.

If you find a loan you like the look of, you can continue with your business loan application on the lender’s website.

How likely am I to get a business loan?

Before applying for a loan, check you meet the basic eligibility criteria of the lender. Although eligibility criteria will vary depending on the lender, most borrowers will be eligible for some type of finance if they meet the following:

  • A good credit score: although your credit score isn't the only factor lenders consider in your application, your score can confirm to lenders that you're creditworthy. This means you'll usually have a wider choice of financial products, better interest rates and longer loan terms. If you have bad credit, that doesn't mean you can apply for business finance. There are specialist products like bad credit loans you can apply for and some lenders might require you to sign a personal guarantee.
  • Collateral: The lender will require collateral if you're applying for a secured loan. You can use any high-value asset, from commercial property to vehicles and machinery, to secure the loan. If you have bad credit, a secured loan can be a good option, as the lender can seize the asset if you don't make timely repayments.
  • A UK-registered business: to apply for a business loan through Capalona, your business must be registered in the UK, have a UK bank account and be registered as a sole trader, partnership or limited company. You must also be over the age of 18.
  • At least three months trading history: Although startups can apply for a business loan, most loan types require businesses to have been trading for at least three to four months. If your business is well established, you might find it easier to secure finance than newer businesses as you're deemed lower risk.
Some lenders might want to analyse your business finances or read your business plan, so it’s a good idea to have your business plan and bank statements on hand.

Always read the terms and conditions

When the lender makes you a loan offer, you should review the terms and conditions in great detail. By agreeing to these terms, you agree to their payment schedules, rates, and more.

Here are a few things to consider when poring through the ts and cs.

Interest rates. You might be able to afford to repay the loan, but have you considered the interest you’ll pay on top? Interest rates can significantly increase the cost of the loan, so make sure you’re aware of the rates you’re signing up for and, if possible, negotiate a lower rate with the lender.

Repayment schedule. If you miss a payment, this can dramatically affect your credit score, or you could lose your asset (if you’ve secured your loan with one). Understand the repayment schedule; how frequent are your repayments? And can you comfortably make them in the given timeframe?

Additional fees and charges. Your lender will likely charge you an additional fee in some circumstances, such as if you fail to make a payment on time or want to repay the loan quicker. Always be aware of these fees, as they are non-negotiable; you must pay them.

Business owner getting a small business loan

The advantages and disadvantages: is a business loan right for you?

Before agreeing to any loan terms, weigh the pros and cons of applying for a loan to decide whether it’s the right decision for you.

Pros of business loans

  • An injection of cash. Applying for a business loan means you suddenly have a lump sum of cash to invest in your business like you’ve always wanted to. This might allow your business to hire new staff, adapt to changing market conditions, or appeal to a new customer base.
  • Grow quickly. With access to cash you can grow your business quicker than you planned.
  • Improve business credit. Repaying your loan on time each month can help you build a better credit score. This means you can access finance more easily in the future should you need to.

Cons of business loans

  • Taking on debt. Debt is a burden to any business. It can cause cash flow problems if you’re not generating enough income to comfortably make repayments, and this cycle can cause unnecessary stress.
  • It’s expensive. On top of the loan amount, you’re paying interest, which can make the loan very expensive, particularly if you only have a few years to repay the debt in full.
  • You risk high-value business assets. If you secure your loan with commercial property or another asset, you risk that asset. You can lose this asset if you don’t repay the debt in line with your terms and conditions.

How easy is it to get a business loan?

With so many alternative lenders now available online, it’s easier than ever to get a business loan. Unlike traditional high-street lenders, many alternative lenders have flexible eligibility criteria, which makes lending much more accessible to the average business owner. This means you don’t necessarily need a perfect credit score and a long trading history, there are business finance options to suit all kinds of business needs.

How long does it take to get a business loan?

It can take just a matter of hours after your loan is approved to see funds in your business bank account. However, how quickly you see funds will depend on the type of loan you apply for (i.e., if you offer collateral for a secured loan, the process can take longer). If you’re applying for an unsecured loan, you can see funds within just 48 hours.

Always ensure you can repay any business debt comfortably before signing on the dotted line. If you’re ready to explore your loan options and compare interest rates, get your free quote today.

About the author

Helen Jackson Author
Written by Helen Jackson | April 29, 2024

Money Writer

Helen has over nine years of experience in content writing and writes financial content for us here at Capalona.

Updated: April 29, 2024
Published: April 08, 2024

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