How to Get a Business Loan in the UK

Getting a business loan is easier to manage when you treat it as a process rather than a single application. Finance providers want to know what the money is for, whether the business can repay it and what information supports the request. Directors who work through those questions before applying usually find the conversation with a provider more straightforward.

The six steps below set out a practical route for UK limited companies, from defining the need to receiving the provider's decision.

Define the need and check your eligibility

Step 1: define the need. Start with the purpose, not the product. Write down:

• what the money will be used for
• how much you need, based on quotes, costings or a cash flow forecast rather than a round number
• when you need it
• how the business will repay it, and from which income

Funding a new contract, replacing a vehicle and bridging slow-paying customers are different problems. They often suit different types of finance.

Step 2: check your eligibility. Criteria vary by provider, but most look at how long the company has traded, its turnover and profitability, the credit history of the company and its directors, and any existing borrowing. Review your own position honestly. Overdue accounts at Companies House, missed payments or arrears with HMRC are better identified and explained upfront. Many of these points show up in credit and Companies House searches, and an issue disclosed early is easier to discuss than one a provider finds for itself.

Prepare your information

Step 3: gather what a provider is likely to request. This typically includes:

• filed accounts and recent management accounts
• recent business bank statements
• details of directors and shareholders
• a summary of existing finance, with balances and repayments
• a forecast or short plan where the funding is for growth or a new venture

Send complete information the first time. Gaps usually lead to further questions and can hold the process up. Our guide to documents needed for a business loan sets out a fuller checklist.

Choose the type of finance

Step 4: match the finance to what you are funding. A term loan is not always the right answer.

• Business loans suit one-off investment such as expansion, refurbishment or a new contract. They can be secured or unsecured, though unsecured loans often still involve a personal guarantee from the directors.
• Invoice finance releases cash tied up in unpaid invoices and can suit businesses that sell to other businesses on credit terms.
• Asset finance spreads the cost of vehicles, machinery or equipment, with the asset usually forming part of the security.
• Working capital finance helps with the timing gap between paying suppliers and staff and receiving income from customers.

Some businesses use more than one. A commercial finance intermediary such as Emirex Finance can help you compare the options against your circumstances, but the decision to lend always rests with the finance provider.

Apply and receive the provider's decision

Step 5: apply. You can apply directly to a provider or through an intermediary. Either way, aim for one complete, accurate application rather than several speculative ones. Providers may carry out credit searches, and several applications made close together can be visible on credit files and raise questions. Ask how and when any search will be carried out.

Expect follow-up questions about anything unusual, such as a dip in turnover or a large one-off payment. Clear, prompt answers help the application progress.

Step 6: the provider's decision. The provider assesses the application against its own criteria and makes the final decision. That may be an offer on the terms requested, an offer for a different amount or structure, or a decline.

If you receive an offer, read it carefully. Check the repayments, the total cost, any fees, the security required and any conditions to be met before funds are released. If a personal guarantee is required, make sure you understand what you are committing to and consider independent legal advice before signing.

If the application is declined, ask whether the provider can share the main reasons. The answer may point to a different product, a smaller amount or information you can strengthen. Understanding what business lenders look for can help with that.

Key points

• Define the purpose, amount and source of repayment before choosing a product.
• Check your eligibility honestly and explain any issues upfront.
• Match the type of finance to what you are funding.
• The finance provider makes the final decision and sets the terms.

This guide is general information, not financial, legal or tax advice. Finance is subject to status, eligibility and approval by the relevant finance provider. Emirex Finance works with UK limited companies only and is not authorised or regulated by the FCA.