Bank loan

How to get a bank loan for your business

How to get a bank loan for your business

Starting a new business, growing an existing business, and improving cash flow are some of the reasons you might apply for a business loan. Read our guide on your options and how to ensure your application is accepted.

Reasons to take out a business loan

There are various reasons why a business may apply for a loan. The most common include:

start a new business
develop a business
hire new staff
the purchase of new equipment or technologies
cash flow improvement
buy new shares

Amid the current economic downturn, businesses are facing increased costs due to rising inflation, soaring energy prices, falling consumer spending and the impact of war in Ukraine. In certain circumstances, taking out a business loan can be a solution.

It could be used to speed up marketing activities or invest in new technologies to streamline operations and improve productivity.

The different types of business loans

There are several types of business loans available in the UK. They can be for short and long term needs, and secured or not.

Secured Commercial Loans: For this type of loan, you must provide a property as collateral. Businesses often use real estate, but banks may also consider assets such as equipment, machinery, and vehicles. If you cannot repay the loan, the security of the loan is at risk.

Unsecured business loans: You can borrow this type of loan without setting up any property as collateral, but you will probably have to provide a personal guarantee for the repayments of the financing. This means that you are personally liable for the loan if your business cannot repay it.

The loans also have fixed or variable interest rates.

Fixed rate loans offer certainty, but prepayment charges may apply.

Variable rate loans often offer more flexibility, but higher interest rates mean higher repayments.

Be clear about what you need the loan for

The bank will want to know if your business has a clear direction and why you need the loan. To answer these questions, a solid business plan is crucial.

Your plan should clearly demonstrate your knowledge of the industry in which you operate by describing the gap in the market and how you are closing it. You should also detail your overall business goals and objectives, as well as your sales, profit, and cash flow projections.

It’s a good idea to work with your accountant on formulating a watertight business plan. This will give you a better chance of accepting your loan application.

Show how you can repay the loan

Before accepting your loan application, a bank needs to be reassured that you are able to repay it. This is where your cash flow forecast comes in.

A cash flow forecast is essential for any business. It indicates the amount of money that should flow in and out of your business and the amount of financing or investment it needs.

Work with your accountant on these forecasts to present your business and its future growth in the best possible light.

If the current increase in business costs is one of your reasons for applying for a loan, showing how you are making repayments is even more important. For example, you may be planning to expand into new markets to meet cost pressures and need funding to pay for additional marketing costs. Demonstrate in your projections how reaching this new clientele will enable you to meet repayments.

Compare the prices

You probably already have an account with a particular bank, but that doesn’t mean it’s your only option for getting a business loan. Compare different lenders, including online challenger banks without physical branches, based on interest rates, repayment terms and the types of loans they offer. You can also look for those promoting special offers or additional benefits for your business.

There may be particular initiatives, such as the Recovery Loan Scheme (see below for more details), which facilitate access to financing from certain banks.

Talk to your accountant about financing options for your business. They might have a relationship with some lenders and be able to do an introduction.

stimulus loan program

The government’s Recovery Loan Scheme (RLS) was initially launched in April 2021 to help businesses cope with the impact of the coronavirus pandemic. It closed in June 2022 but a new iteration launched in August 2022 to help businesses facing cost pressures.

Businesses can access finance through approved lenders who are listed on the British Business Bank’s website.

Full information on the scheme can be found here.

Get help getting a business loan

TaxAssist accountants have helped thousands of businesses access financing. Contact us today on 0800 0523 555 or complete our online inquiry form.

Publication date August 30, 2022

This article is intended to inform rather than advise and is based on the law and practice of the time. Taxpayer circumstances vary and if you find the information provided useful, it is important that you contact us prior to implementation. If you take or do not take action as a result of reading this article, before receiving our written approval, we will not accept any liability for any financial loss suffered.