Am I eligible for a business loan?

If you're thinking about applying for a business loan, it's important to understand the different factors that can affect your chances of success. This guide explains what lenders look for and the steps you can take to increase your likelihood of approval.

What types of businesses are eligible for a business loan?

Lenders consider applications from a range of business types, although each sets its own criteria. You can usually apply if you operate as a:

• Sole trader 

• Partnership

• Limited company

Non-profit organisations and charities can also apply for business loans but often have fewer lenders to choose from. 

To qualify for a loan, businesses usually need to:

• Be registered and actively trading in the UK

• Meet the lender’s minimum trading history requirement 

• Achieve a minimum annual turnover 

• Pass the lender’s credit checks

Be aware that many lenders refuse to offer loans to high-risk or restricted sectors, including:

• Weapons manufacturing or sales

• Chemical production

• Drug-related industries

• Pornography-related businesses

• Illegal activities

• Gambling

• Property investment 

How to get accepted for a business loan

There is plenty you can do to increase your chances of a successful business loan application. 

1. Choose the right type of business loan

First, consider which type of business loan is the best fit for your company. This depends on factors such as the amount you want to borrow, whether you have any assets you can use as collateral, how long you need to pay the loan back, and how long you’ve been trading.

If your business is new, you may find it more difficult to qualify for a standard business loan due to your limited trading and credit history. Instead, consider applying for a startup loan, as these are designed for companies that have been trading for fewer than three years. 

2. Check the eligibility criteria 

Don’t waste time applying for loans for which you’re unlikely to qualify. Check that you meet any trading requirements and that your annual turnover meets any minimum and maximum thresholds. Also, find out whether you need to offer any security or a personal guarantee.

3. Get your finances in order

Lenders typically ask for recent bank statements, cash flow forecasts, filed accounts and details of any existing debts, so it’s essential to keep these documents up to date. These records give lenders a clear picture of your company’s financial health, trading performance and ability to manage repayments.

4. Check your credit score

It’s important to be aware of both your personal and business credit scores before applying for a business loan. If your company hasn’t been trading for long, lenders may use your personal credit score to determine your ability to make repayments. Having a strong credit score suggests you’ve repaid debts on time in the past and should increase your chances of acceptance.

If you have a poor score, you may find it more difficult to qualify, so consider taking steps to improve your credit score before you apply.

5. Consider offering security 

It’s often easier to qualify for a secured business loan, and interest rates tend to be lower. If you’re willing to use business assets, such as property or equipment, as collateral, this may be a suitable option. Just bear in mind that if you fail to repay your loan, the lender can seize your assets and sell them to recover the debt.

6. Have a solid business plan

Your business plan should clearly outline how you intend to use the loan and how it will support your company’s growth or stability. It should also give lenders a detailed overview of your business, including your mission and vision for the business, along with financial projections such as balance sheets, income statements and cash flow forecasts for the next three to five years. 

This should help prove to lenders that your business is viable and that you can afford to repay the loan.

7. Complete the application form accurately

When completing the loan application form, be sure to fill it in correctly. Be honest with your answers and provide all the necessary information to reduce the chances of delays or rejection.

What do you need for a business loan?

As part of the loan application process, you typically need to provide:

• Your full name and contact details, plus proof of ID

• The name and contact details of your business

• Your company’s registration number 

• The date you started trading

• The type of business you run

• The number of employees

• Annual turnover and net profit

• Projected turnover for the next 12 months

• Details of existing debts

• Description of any assets you’re using as security 

You must also tell the lender how much you wish to borrow and what you plan to use the money for. 

Can you be rejected for a business loan? 

Yes, a lender can reject your business loan application. Common reasons for this include:

• Failure to complete the application form correctly 

• Not meeting annual turnover requirements

• Business type exclusions 

• Poor credit rating or a limited trading history

• Insufficient collateral to support a secured loan

• Too much existing debt

• Failure to provide the necessary paperwork on time

If a lender does reject your business loan application, find out why. It’s also sensible to get hold of a copy of your business and personal credit records to check for errors. If you spot a mistake — even if it’s something small, such as an error in your address — contact the credit reference agency to get it corrected. 

Following a rejection, it’s best to hold off applying for another business loan for three to six months. Too many loan applications in a short space of time can make you look desperate for credit, and you could find it more difficult to get a loan.

Read more…

• Which business loan is right for you?

• How do business loans work?

• How to apply for a business loan