Securing funding can be a challenge for start-ups when growing their business.
One route to consider is to apply for a business loan opens in new window – typically from a bank, credit union, or specialist lender.
It’s an increasingly popular option for entrepreneurs, with small businesses borrowing £65.1bn in 2022 opens in new window – an increase of 12.8% over the previous year.
The average business loan is £14,000, which is usually repaid over several years.
Find out how you can get started with a business loan and the documents you’ll need to secure funding.
What is a business loan?
A business loan can be a great way to support your start-up, particularly if you need extra capital to expand your operations or market your business.
The size of the loan can depend on your business, but you can usually borrow between £500 to £100,000.
Unlike personal loans, you may need to provide specific details about how the money will be used, and it has to be for business purposes only.
You might also have to put up collateral to secure a business loan opens in new window.
Collateral might include business assets, such as property, machinery, equipment, and vehicles.
Sometimes, you might be required to put up personal assets.
It may be worth seeking professional financial advice opens in new window when considering a business loan so that you fully understand any terms and conditions and can make an informed decision that is right for your start-up’s needs.
Where can you get a business loan?
Start-up owners can receive business loans from a variety of lenders – such as high-street banks, credit unions, and specialist business lenders opens in new window.
High-street banks may have strict approval requirements, while specialist business lenders may have loans tailored to smaller start-ups.
Some prospective small businesses may use dedicated financial services created to support budding entrepreneurs, such as Start Up Loans.
Established in 2012, Start Up Loans helps give new UK businesses access to affordable finance options.
Learn more about Start Up Loans opens in new window.
Who is eligible for a business loan?
Each lender may have different eligibility requirements to receive a business loan – but generally, you’ll need to be at least 18 years old and a UK resident.
Lenders may also consider:
- your credit score opens in new window– a solid financial history may indicate that you can repay the loan
- your business plan opens in new window– a well-researched proposal suggests that your business could have the potential to succeed
- collateral – you might need to demonstrate that you have assets to secure a loan.
Some banks may exclude specific industries or sectors due to perceived risk or industry-specific regulations.
What documents do I need for a business loan?
You may need to provide specific documents when submitting a business loan to provide evidence of your credentials and the viability of your start-up.
Although each bank will have different documentation requirements, you might be expected to supply some, if not all, of the following:
A business plan opens in new windowoutlines your start-up’s objectives and the steps you will take to achieve them.
The document helps stakeholders, such as investors, understand how you plan to make money and remain sustainable.
You may also need to provide a profit and loss statement opens in new window showing the revenue, costs, and expenses over a period of time, as well as a balance sheet opens in new window showing your assets and liabilities.
A sales assumptions document, sometimes known as a sales forecast opens in new window, predicts your earnings over a given period.
It provides monthly or quarterly projections of the number of units or completed services your organisation expects to make.
This might be based on past sales data, market research opens in new window, industry trends, or other relevant data.
The information can help lenders evaluate the viability of a start-up and may include specific data that supports your business plan.
Cash flow forecast
A cash flow forecast opens in new windowis a way of estimating your start-up’s future earnings and expenditure.
It reflects all your revenue sources, including sales and other payments, using current trends and market research to predict income.
You can use your sales assumptions document to predict these figures and then compare the data to your likely expenses, such as rent, tax payments opens in new window and inventory.
The document helps lenders understand how much investment is needed to support your start-up’s growth and other factors, such as the ability to make regular loan repayments.
Personal survival budget
A personal survival budget opens in new windowdocuments your net annual income minus expenses.
This document might include your income, benefits payments, and monthly bills.
Unlike the other documents you need, the personal budget relates to your activities outside your start-up.
It helps lenders understand your current financial status as the business owner and your ability to make loan repayments from personal assets if needed, as well as general creditworthiness.
Proof of identity
You might need to provide proof of your identity opens in new window to demonstrate that you are the person submitting a business loan application.
This document can be one of the following:
- drivers’ licence
- EU or EEA identification card
- military ID.
If you don’t have these documents, you may be able to provide two different government-issued letters opens in new window.
Business registration documents
As well as proof of your identity, you may need to provide evidence that your business is a legal entity.
Examples include a certification of incorporation from Companies House or evidence of being registered with HMRC opens in new window for VAT opens in new window or corporation tax opens in new window purposes.
Additionally, you may need to provide ownership documents detailing the business’s share allocation and ownership structure opens in new window, such as other shareholders and directors.
Proof of address
A valid postal address opens in new window is a further way to verify your identity, and you might be asked to provide a:
- drivers’ licence
- utility bill
- government-issued letter
- personal bank account or credit card statement
- council tax bill
- housing benefit entitlement.
Proof of an active bank account
An active business bank account opens in new window provides further proof of identity and gives the lender the necessary information to send you money.
You’ll usually be asked to provide a copy of a physical document rather than an online statement.
A loan provider might request copies of the past three bank statements opens in new windowto assess your financial status.
This proves that you can afford any potential loan repayments without relying on income from your start-up.
Some lenders may also require a credit report opens in new window on your business and, occasionally, your credit score or a credit report to better understand your overall creditworthiness.
Finally, if you’re not a UK or EU citizen, you might be asked to provide a copy of your visa opens in new window.
This demonstrates that you have a UK residence and are eligible to work in the UK.
Thinking of starting a business? Check out our free online courses in partnership with the Open University on being an entrepreneur.
- Entrepreneurship – from ideas to reality opens in new window opens in new window opens in new window opens in new window
- First steps in innovation and entrepreneurship opens in new window opens in new window opens in new window opens in new window opens in new window
- Entrepreneurial behaviour opens in new window opens in new window opens in new window opens in new window opens in new window
Plus free courses on finance and accounting, project management, and leadership.
Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.