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6 steps to getting a small business loan

Small Business Loan Application

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There are lots of types of business finance to choose from, including many that are designed for a specific purpose or business model.

Sooner or later, most small businesses need finance. There are many reasons why you might need a loan, from smoothing out cash flow fluctuations, to expanding your business.

Whatever the reason, you’ll need to follow the same basic steps to secure your small business loan.  

  1. Prepare your business case

A business loan may seem like a logical step, but it’s not a decision you should make lightly. Finance always comes at a cost, and depending on the type of loan you could end up locked in to long-term repayments or restrictive conditions.

Before anything else, take the time to prepare a thorough business case, to:

  • Document exactly how you intend to use the money to grow or support your business
  • Check that a loan will deliver the expected value.

You’ll need to include forecasts of any additional profits you can expect to make as a result of the cash boost, as well as all the costs associated with borrowing.

  1. Calculate your repayment capacity

If the numbers add up and you decide to apply for a loan, you need to be sure you can meet your repayment obligations.

Some lenders will be happy to negotiate an affordable repayment schedule that matches your cash flow, so it’s crucial to know how much you can afford to pay, and how often, before you start applying for loans. Use this business loan calculator.

Be sure to leave a buffer for unexpected costs when you’re working out your repayment capacity.

  1. Choose the type of finance you need

The key to choosing the ideal loan is matching your needs with the term of your finance. Short-term facilities like overdrafts often attract higher interest rates than long-term finance like a mortgage – but they also offer excellent flexibility, and only incur interest on the amount of funding you actually use.

Long-term finance may look more affordable because the rates are generally lower – but you’ll pay interest on the whole sum whether you need it or not, and there may be hefty penalties if you want to repay it early.

Unsecured small business loans offered by online Fintech lenders include invoice financing, business loans and lines of credit.

Read this guide to understand all 17 different ways to finance your business loan.

  1. Choose your lender

While the high street banks might seem like the obvious place to turn for a loan, many small businesses won’t meet their stringent lending criteria, especially in the first few years of operation.

What’s more, big banks tend to have lengthy application processes and slow turnaround times, so if you need a fast cash injection you may need to look instead to the booming alternative finance market. There are plenty of companies willing to take the risk of lending to less established businesses – in exchange for a higher interest rate.

With so many lenders to choose from it’s very important to shop around.

  1. Compile your supporting documents

When you apply for a loan you’ll need to supply background information about your business, trading history and financial position. If you decide to apply to a high street bank, you can expect to be asked for full financial statements, a business plan and detailed financial forecasts.

Alternative lenders may only need to see your bank statements and identification documents. To avoid delays, check the requirements of your chosen lender and make sure you have everything to hand before you start the application process.

  1. Complete your loan application

Applying for a big bank loan usually starts with a meeting to present your business case and supporting documents. You can then expect to go through a lengthy assessment process before learning whether your loan has been approved.

Fintech lenders tend to have a much more agile process – often you can submit everything online and get a response within a matter of hours. If your loan is approved, you could even have the funds in your account in a matter of days.

6 steps to getting a small business loan
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