Business loans are part and parcel of running a business. It’s rare to come across a business that hasn’t needed a cash injection from a lender at some point. There are various reasons why loans are needed, with growth opportunities, cash flow management, and supplier advancements all being common reasons to take out a loan. That being said, if you’re new to business financing and aren’t too familiar with the many intricacies of funding a company, you might be wondering how the loan application process works.
In this blog, we’re going to cover how to apply for a loan for your business. If you would like a more detailed summary of the ins and outs of the application process and a step-by-step walkthrough of how it’s done, read our detailed guide on how to apply for a small business loan. For a shorter introduction and overview, keep reading.
What Are Business Loans Used For?
There are several main reasons why you may need a business loan, including:
- To pay suppliers
- To buy equipment or assets
- To secure a property
- To manage cash flow
- To grow your business
These are all valid reasons to consider taking out a business loan. It’s worth noting that, like any other lender, if a business loan lender fails or has a change of financial situation, the financial services compensation scheme (FSCS) will step in to protect your money in a worst case scenario. So like any other loan, your money is protected, as is your business, under the loan terms, no matter what type of loan you apply for.
How Do You Apply for a Business Loan?
So, what does the business loan application look like? In most cases, it takes no more than a few minutes and you could secure funding and agree to monthly repayments within days, provided you follow the steps below.
1. Understand your needs
Business loans tend to be for high amounts of money, so it’s imperative that you’re clear on why you need money and how much money you need. You might be tempted to ask for a bit more money than you actually need to act as a cushion, but lenders will expect you to be able to account for what the money will be used for. If you reserve £7,000 more than you need ‘just because’, they will likely turn down your application. If you need money to purchase a business property, only borrow what you need to purchase the property and get it up to scratch.
In some cases, when you sit down, look at your business bank statements and do the maths – you might not even need a business loan in the first place, or you might decide that going to an investor is the better option for your plans. This is why it’s important to understand why you need the money and whether a loan is the best source for it. If not, your credit report could be marred with a business loan that wasn’t necessary. Also remember that most loans are not suitable for a new business. Instead, if you’re looking to get a business off the ground, think about getting in touch with a funding circle first.
2. Review your credit history
Business loans work in a similar way to consumer credit and personal loan applications. With business lending, a lender will use a credit reference agency to review your credit history and business assets to determine if you’re in a strong enough position to lend to, and whether you’ll be able to repay what you owe. The financials of new businesses aren’t always great on paper, but by reviewing your credit history in detail, you can identify any areas that perhaps are inaccurate or that might be weighing your report down. Ideally, your business will have a credit rating of 700 or more for most lenders to be willing to work with you.
That being said, at Aurora Capital, we work with a range of alternative lenders who provide loans to businesses that have a poor credit history. So, if you don’t have the best credit history, it doesn’t necessarily mean that you can’t apply for business finance, but you should evaluate your credit file, bank accounts, financial statements, and business accounts anyway to make sure they’re up to date and aren’t being impacted negatively by something irrelevant.
3. Consider all types of loans
There are multiple types of small business finance options that you can apply for, each with varying uses, eligibility criteria, monthly repayment terms, and interest rates. It’s important that you take out a loan that is suited directly to your needs rather than one that is the fastest or entitles you to the most money. For example, an unsecured loan might seem like the best option for you on the surface because of the fast access to a high loan amount without the need for collateral, but your financial circumstances may mean that a different type of loan agreement will work best, e.g. one that offers a repayment holiday within the payment terms if needed.
At Aurora Capital, we work with lots of different lenders providing secured business loans, unsecured loans, invoice financing, bridging loans, growth guarantee loans, asset finance, merchant cash advances, and revolving credit (a business overdraft). If you’re unsure which type of small business loan is most suitable for your situation, get in touch with our expert team and we’ll be able to help you. We have assisted countless small business owners and even larger business customers to secure working capital to help float their business plans, and we can help you, too.
4. Apply online to get a business loan
Once you have completed all your preparation, you are ready to apply. You can apply online in just minutes with Aurora Capital. We work with a myriad of lenders and will match you with the correct lender for your needs. We will help you get the best deals and guide you through the process if you need help. If you have any questions or uncertainties about the business loan application process, please get in touch with us and we will provide you with all the information and advice you need to apply for a business loan.
Visit our Knowledge Hub for more information about business loans.
