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Getting a Business Loan - 8 Top Tips
Knowing you want a loan for your business is one thing - but how do you go about getting a business loan? At Clifton Private Finance, we have some tips.
A business loan is a financial arrangement in which a lender provides funds to a business entity to support its various financial needs.
These loans are typically used by businesses to fund operations, expand, invest in equipment or property, manage cash flow, or pursue other growth opportunities.
Business loans are a common way for companies to secure the capital they need to operate and thrive.
Skip to:
- Credit History
- Utilising Your Assets
- Business Plans
- Project Proposals
- Have Your Accounts in Order
- Business Loan Alternatives
- Applying for a Business Loan
- Working with a Broker
Getting a business loan – What options are there?
Business loans can vary in terms and conditions based on the lender, the business's financial situation, and the purpose of the loan.
Secured Business Loans
Secured loans introduce a dimension of security for lenders through collateral. This collateral, often in the form of property or valuable assets, minimizes risk and allows for larger loan amounts, extended repayment periods, and lower interest rates. In the event of non-repayment, the lender retains the right to repossess the collateral.
Unsecured Business Loans
Unsecured business loans allow you to borrow money for your business without offering any of your assets as collateral. They’ll typically have a stronger emphasis on your business’s credit score, and you may also be subject to higher interest rates.
Short-term Business Loans
Short-term business loans can offer a lifeline for companies facing immediate expenses or unexpected emergencies. These loans typically have a quick application process and can offer flexible repayment terms. Interest rates may be slightly higher compared to long-term loans.
Working Capital Loans
Working capital loans are designed to help businesses maintain a steady cash flow. Whether it's to settle bills or invest in seasonal stock, these loans can be a financial bridge during lean periods. Repayment is usually structured around future cash availability.
Invoice Financing
Lenders can provide invoice finance based on the value of your outstanding invoices. There are two ways to do it: invoice factoring, where the lender controls invoice payment, and invoice discounting, which allows your business to manage invoices.
Read blog: Maximising Cash Flow - A Guide to Invoice Finance for UK Business Owners
Lines of Credit
Lines of credit offer a revolving source of funds within a predefined limit, such as credit cards or overdraft facilities. With revolving lines of credit, you can borrow again once you've repaid, making them highly adaptable to your business's changing financial demands.
Merchant Cash Advance
If your business relies on card payments, a merchant cash advance could be a suitable solution. They are popular amongst businesses that have peaks and troughs in their sales and are paid back through a percentage of each card transaction.
Government Loans
Government loans provide businesses with an additional source of funding, especially when traditional business finance options might be limited or expensive.
They may come with lower interest rates compared to standard business loans, but in many cases will have stricter criteria.
What Makes Me Eligible for a Business Loan?
If you own a business and you require working capital for maintenance or growth, you may be eligible for a business loan. Business loans come in many different forms, all with different requirements and terms.
Most business loan applications will want to assess your company’s:
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Credit history
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Annual revenue
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Business plan or a project proposal
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Financial statements
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Tax returns
This may differ depending on the lender and type of loan you are applying for. Some business loans will have strict criteria and a lengthier application process, while others may be less stringent.
Each type of loan will have its advantages and considerations. It’s important to take the time to research your options or work with an experienced business finance broker who can guide you through the process.
See the latest market news below.
2024 Business Finance Market Update
In the past year, business finance saw significant growth, perhaps surprisingly driven by challenger lenders and alternative finance providers. Many of these lenders reached their largest milestones in 2024, primarily through supporting SMEs that may have struggled to access traditional funding elsewhere.
Businesses are continuing to face significant economic challenges carried over from 2023. High inflation, supply chain disruptions, and geopolitical tensions persist, which have complicated financial planning and made it difficult for businesses to acquire funding.
But the Bank of England has cut its base interest rate for the first time in 4 years, signalling a cautious shift toward economic stabilisation after years of inflationary pressure. Further cuts are anticipated, and businesses can expect a flurry of spending in the coming months.
As well as this, a number of banks and large firms seem to be racing to the finish line to implement generative AI and new technology that could streamline business and boost profits. Enhancing tech in banking looks like a win-win for lenders and borrowers, offering more personalised financial solutions and a quicker, more secure process.
In the tech industry, investments in AI are reshaping business. Tech giants like Alphabet, Amazon, and Microsoft have seen their market values surge, driven by the rush to implement AI.
8 Tips to Get a Business Loan
1 - Maintain an Outstanding Credit History
The objective of most loan applications is to assure the lender that you can repay the loan under the proposed terms. Typically, the more confident a lender feels that you can do this, the more favourable your loan terms will be.
Credit history is a fundamental component in many loan applications. Your credit history is the record of your borrowing and repayments over time.
If you have adverse credit, this can indicate to lenders that you have struggled with keeping up payments in the past and, therefore, may be less reliable to repay your loan.
Part of getting a business loan is always going to be showing that you are a trustworthy company that pays its bills on time, and the way to do that is to maintain a strong credit score.
Just like your personal credit rating, your company’s credit history is a key element to securing a business loan.
We’ve included some factors below that can help you improve your business’s credit rating if you need to.
Make payments on time
Whether that’s something as seemingly small as a company phone contract or larger considerations such as maintaining your corporate mortgage, making sure that you pay everything on time is the first thing to do to build a strong credit score.
Limit your loan applications
While a “soft check” on your company credit history won’t have any impact on your credit score, a thorough hard search on your business will.
If you are always trying (and failing) to get loans, it will affect your business’s credit rating. It can be beneficial to research a business loan thoroughly before you apply to make sure you fit the criteria.
And if you are unsure what your options are, an experienced financial adviser can guide you through the process and offer advice tailored to your business.
Use a company credit card
It’s possible to build your credit score up over time by borrowing responsibly using a credit card and always meeting payments on time.
This can be especially useful for new businesses that might be otherwise unknown to credit agencies.
Have a good personal credit history
Your business’s credit rating isn’t the only thing lenders will take note of in your application. If you are a company director, then it’s important to keep your personal finances in as much good standing as your business’s.
This is especially the case for sole traders and partnerships, as any business loan will be considered based on your personal credit rating.
It’s important to remember that a non-existent credit history is not necessarily a good thing, either. In most cases, there is no reason to shy away from sustainable borrowing using credit cards if you are confident you can pay back what you have borrowed.
Typically, meeting your repayment deadlines promptly is actually sufficient to build your credit over time.
2 - Utilising Your Business Assets
If your business already has considerable assets, whether that’s in terms of equipment, vehicles, or even a company-owned building, asset-based lending can offer a range of secured loan options.
These will likely have better rates and more favourable terms than unsecured alternatives.
In this way, your business assets could be an option to help you secure the funding you need.
3 - Have a Strong Business Plan
While startups may be used to having their business plan ready to go for any loan application, businesses that have been trading for a while tend to forget about this important document.
Your business plan should comprise of a live document that is regularly updated and altered as necessary.
By keeping it up to date, you show that you have a close eye on your business and its development.
Ensure that the accounting section of the plan is up to date, too, by undergoing annual forecasts that take into account how the business has changed as time goes on.
4 - Develop a Project Proposal
Think of a project proposal as a miniature business plan for a specific project.
Suppose you are looking to raise money for a new venture inside the business or for expansion that’s focused on a particular project. In that case, a project proposal will be as essential as the main business plan.
This should follow the same guidelines as a main business plan and include the appropriate financial forecasts that make you confident the project will succeed.
5 - Have Your Accounts in Order
It should go without saying that you need your business accounts to be as good as they can be, but this can often be overlooked.
Lenders need to assess the financial health and stability of your business to determine your ability to repay the loan. Prepared business accounts provide a comprehensive overview of your company's financial performance, including income, expenses, assets, and liabilities.
Our brokers can work with your accountant to present your documents in the best way possible for a business loan application.
6 – Business Loan Alternatives
If a business loan is not the right option for you currently, there are other ways to secure the capital your business needs.
Specialist loans, grants, outside investment, asset funding, and crowdfunding are all possibilities that may work better for your business than a standard bank loan.
7 - Applying for a Business Loan
In many cases, it is advisable to thoroughly research a loan or work with a financial adviser before you apply for a business loan.
Not only can a rejected loan application have a negative effect on your business’s credit score, but it is common for business loans to have application fees.
Additionally, if you are in the USA, be aware of the ERC (Employee Retention Credit) Requirements and Eligibility Criteria that might impact your decision-making.
Make sure that you have checked the terms of the loan thoroughly, have your paperwork ready, and know all your details well before you fill out the form. This can facilitate a smoother application overall.
8 – Working with a broker
There is a wide range of finance packages and products available for businesses, and unless you are in the financial loans sector yourself, no one expects you to know about all of them.
A broker, on the other hand, is a specialist who does this for a living. An experienced broker will have a thorough knowledge of what deals are available and can advise you on what would be best suited for your business’s needs.
At Clifton Private Finance, our team are experts with comprehensive knowledge of a range of loans and will be able to find the financing you require.
Call us on 0203 880 8890, or book a consultation below.
