Your guide to business loans

Similar to personal loans, obtaining a business loan requires you to submit an application to a lender. 

Typically, business loans are offered by banks, financial institutions, or alternative lenders. An eligibility criteria is used to determine the amount of money an applicant can borrow. To do this, lenders evaluate the business’s creditworthiness, financial history, and business plan before approving a loan. The loan terms, including interest rates and repayment periods, vary based on the type of loan and the borrower’s profile, for example, short term loans often come with higher interest rates than long term loans. 

If you accept a lender’s terms, you are locked into a specific repayment plan. Usually, you’ll repay the loan monthly with interest over a set period of time, for example, 12 months. However, you may be able to make early repayments if you choose to, this is dependent on the terms set out by the lender.

There are several possible disadvantages to business loans, including:

• There’s a risk of default or missed payments which can both have a negative impact on your personal or business credit score. 

• Depending on the lender there can, on occasion, be substantial administrative activities involved in getting a business loan, including building out cash flow projections, a company strategy, and sometimes even an exit strategy, which is essentially a document that explains how you plan to repay the loan. 

• Some lenders ask for a personal guarantee, which means you will be personally liable for the full loan as an individual even if your business cannot repay it. 

Every business is unique and so is every loan application, but generally, it would look like this: 

1. Decide on the reason for your application and how much you need to borrow. 

2. Assess your business’s current financial situation. Figure out if you can afford the loan (online calculators like the one on this page can help you understand how much the loan could cost) and how you plan to repay it. 

3. Assess the available lenders and loan options. We can help you do that. 

4. Put together your supporting documents. You might need to include your company goals, financial projections, company history, and an exit plan, however, you may only need details of what you need and some information on your business to get an initial quote. 

5. Fill out and submit the application. 

6. The lender will assess your documents and use several factors to determine how likely you are to repay the loan. They will likely run a hard credit check. If you are applying for a business loan as an individual or if you have provided a personal guarantee, they may run a credit check on you as well as the business. 

7. The lender will get in touch to tell you if the application has been approved or rejected. 

8. If it’s been approved there may be further steps for you to take depending on the loan type, for example, you may be asked to sign terms and conditions. 

9. The money is released! 

Repayments will depend on the loan, but generally, most businesses pay: 

• In monthly instalments.

• The money is taken out of the designated account on the same day each month.

• Interest is charged as a percentage on the amount borrowed and is paid alongside the loan.

• At the end of the payment term, when all repayments have been made, no further money is taken from the account.

However, sometimes:

• Only the interest on the loan is taken out on a monthly basis and the full loan amount is repaid at the end of the agreed term. 

• A “balloon payment” applies. This is when a reduced amount is paid monthly and a larger sum is paid at the end of the term. An example of this is when a car is purchased via balloon hire purchase, which means a monthly payment is made and at the end of the term the borrower has the option to pay the final balloon amount to take on ownership of the car or they can decide not to pay the balloon amount and they can return the car to the lender. Some agreements allow for setting up a new finance agreement or trading in the car for a newer model. 

• Early repayment is allowed, in which case it may be possible for you to repay the full loan earlier. 

There are severe consequences to missed payments including a possible impact on your credit score and ability to borrow in the future. Speak to your lender before agreeing to a loan to ensure you understand exactly when and how repayments will be made and what will occur if you fail to repay. 

Business loans can provide you with funds anywhere between £1,000 and £20M. 

Loan terms can vary from a one-month repayment up to 15 years. Using a business loan calculator can help you determine the cost of the finance you’re looking to borrow. 

Enter the amount you plan to borrow, the quoted annual interest rates, and the term length to see how much a loan could cost your business.

Check out Funding Options by Tide’s Online Business Loan Calculator! Calculations are indicative and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.

Your credit rating greatly impacts your eligibility for a business loan.

Lenders use your credit rating as an indicator of how likely you are to repay your business loan. If your credit is bad, this can mark you as a high-risk borrower, leading to stricter lending terms. In some cases, traditional lenders may even be unwilling to work with you. 

To improve your chances of getting a business loans with good terms, follow these steps:

1. Check your credit: Lenders will always check your credit history when you apply for a business loan. Get a head start by obtaining a copy of your credit report and ensuring it accurately reflects your recent transactions and lending history. 

2. Organise your finances: Before applying for a loan, aim to settle existing debts and establish a strong cash flow. A demonstrable cash flow indicates a growing business, making lenders more likely to work with you when they review your accounts. 

3. Check your business accounts: You need recent financial accounts to provide to lenders during the application process. Most lenders want up-to-date accounts, meaning you should have accounts filed less than two years ago, including a detailed profit and loss report and a balance sheet.

Create a plan: Lenders want to know how you intend to spend their funds. When applying for a business loan, make sure you have a clear business plan and an explanation for why you need these funds.

Yes, they can impact your business and personal credit score both positively and negatively. Consistent repayments and low utilisation can result in a positive impact whereas missed payments or a default can have a severe impact on your business’s credit score. If the lender carries out a hard search, the application itself can have a negative, albeit temporary effect on your score.

When it comes to personal scores, even if you apply as a limited company, your lender may ask you to make a personal guarantee. Personal guarantees are legally binding agreements that make you personally liable for the loan amount if your business is unable to meet its repayment obligations. If you agree to a personal guarantee, this can show up as a record of a loan on your personal credit.

There are a number of places you can find business loans, including high street banks, challenger banks, alternative lenders, online P2P platforms, and even the government. Deciding which one to go for is a matter of personal taste and your unique circumstances. 

A loan can take anywhere between a few hours to a few weeks to set up. The time it takes to get a business loan depends on factors such as the type of loan and the lender. For instance, secured loans tend to take longer to set up than unsecured loans.

Depending on the institution, UK lenders may offer business financing options to UK-based businesses. In terms of how to get a business loan in the UK, the steps are the same as those listed above – find a lender, decide what type of loan you want, and submit an application. 

You must be 18 years or older and meet the lender’s credit requirements to be eligible for a business loan.

We provide UK SMEs with access to fair business loans, matching our lending quotes to your specific financial needs and business scenario. Through Funding Options by Tide, you can match with 120+ lenders for loans from £1,000 to £20M. 

Plus, our experts are on standby to help you through the entire process!

Start applying today

Eligibility depends on several factors. You’ll usually need to be a UK resident or business based in the UK, over the age of 18, and the loan must be used for business purposes. 

You’ll likely need to prove that you have the funds to meet the agreed repayment schedule. Beyond that, if your business was founded within the last year, it may help you to apply for start up business loans as traditional business loans may need to see a longer financial history. 

We can’t speak for exactly how much you could be eligible for as every business is unique, but we help facilitate loans ranging from £1,000 to £20M.