Step 1 — Know What Type of Loan You Need
Before approaching any lender, identify which product fits your purpose:
- Unsecured term loan — £5,000 to £500,000, no asset security needed, higher rates (8–35% APR), 1–5 year terms. Best for: working capital, growth, recruitment.
- Secured term loan — £25,000 to £5m+, backed by property or assets, lower rates (4–12% APR), longer terms. Best for: larger capital expenditure, property.
- Revolving credit facility — borrow up to a limit, repay and redraw. Best for: managing cash flow peaks.
- Government-backed loans — Start Up Loans (up to £25,000, 6% fixed), British Business Bank schemes. Best for: early-stage or underserved businesses.
Choosing the right product matters. Applying for an unsecured loan when you could use asset finance, for example, means paying a higher rate than necessary.
Step 2 — Check Your Eligibility
Lenders assess five key areas:
Trading History
Most mainstream lenders require 2 years of filed accounts. Alternative lenders will consider 12 months. Start-up lenders go from day one with a strong business plan.
Annual Turnover
A common minimum is £100,000 per year for mainstream unsecured lenders, though some fintechs accept £50,000+. Secured lenders focus more on asset value than turnover.
Credit Profile
Both your business credit score and personal credit score are assessed. CCJs, defaults, or insolvency events in the past 6 years are likely to result in a decline from mainstream lenders, though specialist lenders exist for adverse credit.
Affordability
Lenders look at your monthly profit after existing debt servicing. A rough benchmark: the new repayment should not exceed 30–40% of monthly net profit.
Purpose
Lenders want to know what the money is for. Be specific and honest — “working capital” is fine, but “consolidating existing debt” needs more careful handling.
Step 3 — Gather Your Documents
Have these ready before you apply:
| Document | What Lenders Want |
|---|
| Filed accounts | Last 2 years (full, not abbreviated where possible) |
| Bank statements | Last 3–6 months (business account) |
| Management accounts | If filed accounts are more than 9 months old |
| VAT returns | Last 4 quarters (if VAT registered) |
| ID and proof of address | For all directors/shareholders with 25%+ |
| Details of existing lending | Outstanding balances and monthly payments |
Fintechs often accept open banking access in lieu of bank statements, which speeds up the process significantly.
Step 4 — Approach Lenders in the Right Order
Don’t shotgun applications. Multiple hard credit searches in a short period damage your credit score and signal desperation to lenders.
Instead:
- Use a broker first — a whole-of-market broker will soft-search multiple lenders without leaving a footprint and identify the best match for your profile. Good brokers are free to the borrower (paid by lender fees).
- Start with your existing bank — they have transaction history on you and may offer preferential terms. Get a decision before applying elsewhere.
- Consider government-backed options — if you’re early stage or struggling with mainstream criteria, the British Business Bank’s schemes are worth exploring.
Step 5 — Make a Strong Application
A strong business loan application:
- States the purpose clearly — “purchase of CNC machine to fulfil a 12-month contract with [client]” is far more compelling than “working capital”
- Shows how you’ll repay it — reference your revenue projections or the specific cash flow that services the debt
- Addresses weaknesses proactively — if your last year’s accounts show a loss, explain why (COVID, one-off cost, investment year) and show the current position
- Includes a covering letter — especially for bank applications; humanise the business
Step 6 — Understand the Offer
When an offer arrives, check:
- APR vs flat rate — make sure you’re comparing like for like
- Total repayable — not just the monthly payment
- Early repayment charges — relevant if your cash flow improves
- Personal guarantee terms — what exactly you’re guaranteeing and whether it’s capped
- Drawdown conditions — are there any conditions precedent to receiving the money?
Tips for Improving Approval Chances
- File your accounts on time — late filings flag poor administration to lenders
- Reduce your credit utilisation on business credit cards before applying
- Clear or reduce existing short-term debt first
- Build a relationship with your bank account manager before you need the money
- If refused, ask the lender to explain why in writing — this helps you fix the issue before applying elsewhere
- Wait 6 months between declined applications on your credit file
What Happens If You’re Declined?
A decline from one lender doesn’t mean all lenders will say no. The UK market includes:
- Challenger banks — Tide, Starling, Allica — often more flexible on criteria
- Specialist SME lenders — Funding Circle, Iwoca, Nucleus Commercial Finance
- Asset-based lenders — if you have equipment, vehicles, or invoices, asset finance or invoice finance may unlock capital without a traditional credit decision
- Community Development Finance Institutions (CDFIs) — government-backed lenders focused on underserved businesses