How Do I Apply for a Business Loan?

Whether you’re exploring ways to launch a new entrepreneurial venture or expand an existing one, a key part of the process usually involves figuring out how you’re going to fund it.

Some people are in a position to bootstrap their business, which means getting it off the ground and growing it without any external investment or capital, whereas others consider a variety of funding options to help them start and scale the business.

Loans are often the first port of call for business owners looking for a cash injection, with several different types, such as traditional bank loans, online lenders and government-backed lending initiatives.

Whichever type of business loan you decide to pursue, the application process is critical – a strong application is key in securing any kind of funding, so keep reading for some helpful guidance.


Applying for a business loan

The specific steps and processes might vary depending on the type of loan you choose and the lender you’re applying to. Here’s a simple step-by-step guide to mastering the general loan application process.

Check your credit score

Before you do anything else, check your credit status. If you’re a sole trader then there’s no legal distinction between you and the business, so your personal credit score will be just as important.

Limited companies are a separate legal entity so lenders will often take both your personal and business credit history into account when reviewing your loan application – particularly if it’s a very new business without much historical info to refer to.

If your credit score is poor, now would be a good time to take measures to improve it. This will help make you more appealing to lenders as you will become a lower risk to them.

Determine the purpose of the loan and how much you want to borrow

Lenders will want to see a loan application which is well-considered and comprehensive in its explanation, so it’s important to start by defining the aim of your loan application; what do you need to borrow funds for?

Understanding this will both help support your application, but also help you choose what type of loan to apply for in the first place!

Identify the type of business loan you need

Researching the different types of business loans on the market will help you match up with a lending facility that meets your aims. Compare things like interest rates and repayment terms too, to help you find the best deal.

Check your eligibility

Once you’ve identified the type of loan you’d like to apply for, now is a good point at which to assess your own eligibility. The last thing you want to do is waste time, energy, and resources on putting an application together for a loan that you won’t qualify for.

Polish your business plan

Any potential lender will want to see that you’ve got a plan in place to grow the business and be able to pay back what you owe, so a detailed business and financial plan is the most effective way to demonstrate this.

Make sure to include financial projections, details about your business, and market research to demonstrate a sound knowledge of your industry and your position within it.

You should also calculate how long you predict it will take you to pay back the loan (including added interest) and present this as part of your projections.

Collate financial documents

You will need to provide various financial documents as part of the application process, along with your business plan and the application form itself, such as:

  • Bank statements
  • Cash flow statements
  • Tax returns
  • Profit and loss statements
  • Balance sheets


Secure your guarantees

Some lenders will require you to provide a personal guarantee. This is a legally binding agreement where you select somebody to cover your loan repayments with their own funds if your business defaults. You may also be required to provide information on assets that can be used as collateral if you can’t pay back the money.

Submit the application and wait for approval

Once you’re satisfied your application ticks all the necessary boxes, you can go ahead and submit it. Then, it’s just about waiting for the lender to review your application and assess your creditworthiness, and evaluate your business’s financial stability.

Once that’s done, you’ll either get notice of approval or notice of rejection. Some traditional banks will require in-person meetings as part of the loan application process.


How long will it take to get a business loan?

This entirely depends on factors like what you’re applying for, how much money you want to borrow and how long you plan repayment to take.

If you’re applying for a loan from a bank which you already have a personal or business bank account with, for example, the process will probably be quicker.

In some scenarios, the loan application can take just a couple of weeks, for others it could take a few months.

What if a business bank loan application gets rejected?

The reality is that not every loan application you put forward is going to get the response you want. Common reasons for refusing a business loan application include:

  • A low credit score
  • Cash flow limitations
  • A concerning ratio of debt to income
  • If you work in a high-risk industry
  • Low business asset value
  • Insufficient time in business
  • A low-quality or incomplete application

You might still have other options if your business loan application is refused, such as:

  • Crowdfunding
  • Small business grants
  • Angel investment
  • Venture capital
  • Peer-to-peer lending platforms
  • Online lenders
  • Credit unions
  • Business overdraft
  • Community development financial institutions (CDFIs)

You might even find that these alternative routes to funding give you more flexibility than traditional business loans.


The importance of accurate bookkeeping

It’s important to remember that most business funding options, including loans, are treated as a form of income. Plus, any repayments will qualify as a liability.

This means you need to make sure you’re recording loan income and repayment outgoings in your bookkeeping for accurate financial reporting.

Meticulous bookkeeping will also support you when it comes to demonstrating to loan providers that you will be able to pay them back – and how. This lowers the risk of lending to your business and increases your chances of loan application approval.

Find more tips and advice for your business on our website, or learn more about hiring an accountant.

Stephanie Whalley
Serial snacker, compulsive cocktail sipper and full time wordsmith with a penchant for alliteration, all things marketing and pineapple on pizza.