How easy is it to get a business loan?

Getting a business loan in the current financial landscape

It’s no secret that the last few years have been a tough time for businesses of all sizes across the UK. From the impact of the 2008 financial crash to the widely acknowledged business challenges created by the pandemic and rising supply chain costs, many industries have faced challenges like never before.

Finding new injections of much-needed cash could be the solution to getting your business back on an even footing – or fuelling growth. However, the background of the global economy can impact on the most modest of loan applications from the smallest of businesses.

In December 2021, the Office for National Statistics reported that almost a third (29.5%) of all trading businesses were still suffering from a loss in turnover, with 13% stating they had no cash reserves available – the highest percentage since June 2020 (6%). This has led to a sharp rise in the application for new business loans, with an increase in the level of debt taken on by UK SMES by 25%, according to the Bank of England.

What does this mean for you, as the owner of a small or medium-sized business? Well, some lenders have become much more selective when it comes to choosing which businesses will successfully receive funding. It doesn’t mean you won’t be successful, but it does mean that having the right expert advice and guidance to find the business loan that works for your purposes is vital to increase your chances to getting access to the finance you need to achieve your business goals.

What do lenders look for when assessing business loan applications?

Whether you’ve just established a new business, are a sole-trader, SME or larger enterprise, there are a couple of key items that lenders will always consider when weighing up the merits of a business loan. What may surprise new applicants, however, is that it’s not just about your business, but your personal financial record as well.

From this they can extrapolate how trustworthy or reliable you are likely to be with your business finances , as well as whether you or your business will be able to guarantee repayments, if required.

The key financial markers that any business loan lender will want to assess are known as the “5 C’s of Credit”. These include:

• Capacity: The business owner’s/owners’ ability to repay the loan, based on household income, business revenue, cash flow, any outstanding debt and the amount of money the owner has personally invested into the business.
• Character: The likelihood of the business owner to repay the funds. This considers their personal financial history, such as credit history and any previous or pending lawsuits.
• Collateral: What business assets are available to help secure the loan, such as vehicles, real estate or accounts?
• Capital: If a business owner has personally invested money into their business, this can be seen as a measure of financial commitment – and therefore a safer investment for business loan lenders.
• Conditions: How likely the lender thinks it is that the loan will enable your business to be successful, examining the current economy and market conditions, as well as the chances for continued growth after securing new finance.

What qualifies your business for a loan?

To apply for a business loan, you must first meet a few key criteria. These vary slightly, depending on the size of your business, but key evidence will always be needed to begin approaching a lender.

Whether you’re a sole trader, limited company or a partnership, all business loan applications will ask for:

• At least one year of filed accounts as a trading business as well as a record of your last set of filed accounts
• A year-to-date Profit & Loss balance sheet (this is not required, but highly recommended for successful consideration)
• Three months of recent bank statements
• Photo identification

The Finance Hub difference for business loans

A core value we hold at The Finance Hub is that we always take a consultative approach with our customers; this helps us to get to know who you are, where you see the future of your business and how we can help you reach your dream milestones.

That’s why, with all new business loan enquiries, we will always have a chat with you first to understand better what you’re looking to achieve – and what will be the most beneficial route for your business.

The best part? This initial consultation is absolutely free! We want to help support businesses of all sizes equally, whether you’re a sole trader, SME or limited company, and will always look to find the best lenders for your unique needs. And if we don’t think a business loan is the right solution for your particular circumstances, we’ll discuss alternatives and put you in touch with the expert we think can best help you.

Growing a business can be a very complicated process, which our affiliates know all too well. Through our initial consultation, we will talk you through the questions that bankers and brokers often won’t take into account, giving you the expert guidance and preparation you need to apply successfully for a business loan or cash flow lending.

If you choose to apply for a business loan, we will then take you through the application process in a simple and clear way, helping you to understand which lenders we think are most aligned with your business goals, so you can have confidence that the finance you choose to access matches your circumstances and objectives. We also ensure that we only submit funding applications on your behalf that have a good chance of success, so reducing the chances of failed applications making a dent in your credit score.

Our top tips for increasing your chances of securing the loan you need for your business

Want some quick advice on the best ways to improve your chances of getting a business loan? Look no further! We recommend:

1. Know your business like the back of your hand: Preparation is key when it comes to securing new finance, so knowing any details of turnover, forecasts and predictions can be a great help in giving a lender confidence in your business loan application.
2. Stay on top of your financial records: Demonstrate how on top of your business you are by keeping your financial records current and up-to-date. This can help show that you are responsible and committed to keeping your books in check — something that will instil confidence in lenders.
3. Be honest about your business plans: Whether you’re looking to fuel growth, finance new equipment, plant or machinery, expand into new premises or buy more stock, being upfront and open about your intentions can help lenders better understand why you need a business loan – and where that money will go.
4. Understand what you need – not what you could get: While you may have good chances of borrowing a high sum of money, is this the best choice for your business? Look at your long-term goals and try to work out what amount of funding is necessary, as overborrowing may impact how lenders assess your business in the future.
5. Speak with an expert adviser: The best way to have an edge with your business loan application is to speak with a financial adviser who understands what bankers and brokers are looking for. We offer a free consultation to all of our customers for this purpose, so you can have confidence in whether you’re likely to be successful in gaining the funding you need for your business.

If you’re interested in applying for a business loan with The Finance Hub, get in touch today! We’re always happy to take a call, email or make you a coffee if you pop in for a chat.