How to get a bank loan for your business

Reasons to take out a business loan

There are various reasons why a business might seek a loan. Common ones include:

• starting a new business
• growing a business
• taking on new staff
• purchasing new equipment or technology
• improving cash flow
• buying new stock

Businesses are facing increased costs as a result of soaring energy prices, falling consumer spending and other external global and national influences. In some circumstances, taking on a business loan might be a solution to fund your business.

It could be used to accelerate marketing activities or invest in new technology 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 requirements, and either secured or unsecured, with fixed or variable interest rates.

Secured business loans: For this type of loan, you need to provide an asset as security. Businesses often use property, but banks might also consider assets like equipment, machinery and vehicles. If you can’t repay the loan, the security for the loan is at risk.

Unsecured business loans: You can borrow this type of loan without putting up an asset as security but you will likely have to provide a personal guarantee for the funding repayments. This means you are personally responsible for the loan if your business can’t repay it.

Fixed rate interest loans offer certainty but early repayment fees may be required.

Variable interest rate loans often provide more flexibility but an interest rate increase means higher repayments.

Be clear on what you need the loan for

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

Your plan needs to strongly demonstrate your knowledge of the sector you’re operating in by outlining the gap in the market and how you are filling it. You also need to detail your overall business goals and objectives, plus your sales, profit and cash flow forecasts.

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

Show how you can repay the loan

Before it accepts your loan application, a bank needs reassurance that you are able to repay it. This is where your cash flow forecasts come in.

A cash flow forecast is essential for any business. It shows how much cash is expected to flow in and out of your business and how much funding 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 make the repayments is even more important. For example, you might be planning to expand into new markets to deal with cost pressures and need the funding to pay for extra marketing. Demonstrate in your projections how reaching this new customer base will ensure you can meet repayments.

Shop around

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

There might be particular initiatives, such as the Recovery Loan Scheme (see below for more details), which make it easier to access funding from particular banks.

Speak to your accountant about your business funding options. They might have a relationship with certain lenders and be able to make an introduction.

Growth Guarantee Scheme

The Government’s Growth Guarantee Scheme was originally launched under the name Recovery Loan Scheme in April 2021 to support businesses in dealing with the impact of the coronavirus pandemic.

Businesses can access funding through accredited lenders which are listed on their website.

Get help with securing a business loan

TaxAssist Accountants has helped thousands of businesses access funding. Contact us today on 0131 654 1771 or complete our online enquiry form to arrange a free face to face meeting.

Date published 30 Aug 2022 | Last updated 16 Sep 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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