How to apply for a loan for your start-up business

If you’re looking to get your business idea off the ground or want to expand your start-up to achieve more, you may be considering taking out a business loan to finance your start-up plans.

With the appropriate funding and financial support, your start-up could invest in new technologies, markets, and employees.

In 2021 38% of start-ups failed in the UK because they didn’t have adequate funding.

This can happen for several reasons, from running out of personal funds to put into the business to failing to raise investor interest and capital.

Business loan applications can seem complex and confusing, especially if it’s the first time you’re navigating them.

We’ve broken it down below into the key steps and helpful tips that may help boost your chance of a successful application.

How to apply for a start-up business loan

1. Identify why you need a loan

Be prepared to explain why you need a business loan and how the money will be used.

Do you need the money to get your idea off the ground?

To expand your team and hire new talent?

To ensure you have enough cash for day-to-day operations?

Be as detailed as possible when calculating your costs.

This will give you a better picture of your business’s financial health and the impact of any loan and help you later in the application process.

2. Research loan providers

Choose a suitable business loan provider.

Options may include high street banks, specialist lenders, independent investors, or organisations such as Start Up Loans.

Research the loan terms and conditions, which may differ depending on the provider.

These terms and conditions can consist of interest rates, loan security, and repayment schedules.

All can affect how much interest you’ll pay, and what assets might be at risk if you can’t repay the loan.

It’s always best to seek independent financial advice before signing up for a loan.

3. Pull together everything you will need beforehand

Gather all the information and documents you will need for your application before starting.

While lenders may have different requirements, you’re likely to need the following:

  • your business plan – a breakdown of how much you’re asking for, why you need it, and how you will use the loan are key to convincing loan providers to accept your application. Use our free business plan template to help you get started.
  • personal details – this includes proof of ID (such as a passport or driving license) and proof of address (such as a recent utility bill or personal bank statement). Loan providers need this information to avoid fraud and money laundering schemes.
  • financial forecast and balance sheet – this is required so loan providers can see the bigger picture, and won’t base their judgement on a single period of trading. A financial forecast shows you’ve calculated cash flow and your ability to repay the loan. In contrast, a balance sheet will show your assets, any money your business owes or is owed, and other liabilities.
  • business bank statements – used to verify the income and spending related to your business.

4. Applying for your loan

While application processes vary, most share similarities.

Many lenders need applicants to meet specific criteria – so check before applying.

After you’ve applied, the lender will typically run an eligibility check and credit score check.

Some loan providers may request an interview with applicants depending on the business type, the amount of money being applied for, or the loan type.

5. The outcome

A start-up business loan application can take a few weeks to be reviewed.

If approved, a formal loan offer will be made.

Before you accept, be sure to remind yourself of the loan’s terms and conditions, and the repayment schedule.

If your loan application is rejected, you can ask why.

You may be able to use this information to improve future loan applications.

Remember that just because one loan provider said no, that does not mean you can’t apply for your business loan elsewhere.

Tips for securing a start-up business loan

  • Pay close attention to detail during the application process – a single misspelt word or wrong number could jeopardise your application. Double-check your application before you send it off, or have a trusted friend read over it with fresh eyes.
  • Keep an eye on your credit history. To secure a loan, banks may need proof that you’ve borrowed money in the past and paid it back on time. Doing this can give you a good credit score and history, making your application more likely to be accepted. You can check your credit score with companies like ClearScore.
  • To improve your chances of securing a loan and to make the process less complicated, only apply for one loan at a time. Use a loan calculator to calculate how much you could receive and the interest rate to make an informed decision.
  • Check if you’re eligible for a grant. The Government has a number of schemes and grants for start-ups and small businesses, and not having to pay back borrowed money will be one more thing crossed off your list.

Want to learn how to manage your start-up’s finances? Check out our free online courses in partnership with the Open University on being an entrepreneur.

Our free Learn with Start Up Loans courses include:

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.

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