How to apply for a small business loan

Is your business ready to grow? Perhaps things haven’t gone to plan, and you just need some financial support? Whatever the reason, if you’re thinking of applying for a small business loan, this guide is for you. In this guide, we’ll be answering questions like ‘what is a small business loan’ and breaking down how to get a small business loan.

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What is a small business loan?

In simple terms, a small business loan allows businesses to borrow money that will be invested back into the business.

How this money can be used can range all the way from keeping daily operations running smoothly to something more ambitious such as expansion plans like business acquisitions.

Where can you get a small business loan?

There are various lenders that offer small business loans including:

• Online lenders

• Banks and building societies

• Charities

• Government bodies – This includes a government-backed start-up loan

How does a small business loan work

Before delving further into getting a small business loan, it’s important to know more about how they work. This includes understanding the difference between secured and unsecured business loans.

With a secured business loan, you’re required to provide a valuable business asset as security or ‘collateral’ against the loan. This may include property, equipment, or machinery. The amount that you’re then able to borrow will usually depend on the value of the asset.

Meanwhile, for unsecured business loans, the main difference is that you don’t need to provide a business asset as security against the loan. However, unsecured loans tend to have stricter requirements as you aren’t borrowing against the value of anything.

Apart from being secured or unsecured, there are various types of small business loans on the market. As it’s such a big decision, it’s best to do your own research in order to see which type of loan suits your business’ needs.

How to get a small business loan

Each lender is different; however, the overall process will usually be relatively similar. Here’s an idea of the steps you might need to take in order to get a small business loan:

1. Ask for a quote from a lender. You may be required to share some information and fill out some documents at this stage.

2. Once you’re happy with a quote, you can agree on the terms with your lender. This includes how much you can borrow, how long you have to pay it back, and a payment plan.

3. After you’ve signed all the final documents, the funds should be made available for you to spend.

4. Start making repayments to your lender based on your agreed payment plan.

Small business loan requirements

If you’re interested in applying for a small business loan, there are some factors which can affect eligibility. Depending on the lender, the information they ask for may differ slightly.

Here are some typical small business loan requirements:

• Being 18 years of age or over

• Being a UK-based business

• Having the right to live and work in the UK

• Being deemed creditworthy

• Details on how you’re planning on spending the money

There may also be additional criteria for you to be deemed eligible for a small business loan. This can include:

• Age of business

• Bank and financial statements

• Trading and payment history

• Potential security or collateral

• Details of any other business loans or finance

Advantages of a small business loan

If you’re still weighing up whether to borrow money or not, here are some of the advantages of a small business loan:

Control

One of the main reasons why some people may opt for a small business loan is due to maintaining control. Compared to other funding options, you don’t lose control of your company.

Early growth

With a small business loan, you’ll be able to take actions in the business before you technically have enough profit to do so. Depending on how you use the money, you could end up seeing business growth at a more accelerated rate, earlier than expected.

Flexibility

Within reason, it’s up to you how you decide to use your small business loan. As long as it’s beneficial for your business, it’s unlikely that the lender will have an issue.

Below are some things you might use your small business loan for:

• Equipment and machinery

• Marketing

• Hiring and training new staff

• Expanding your existing business

• Company acquisition

• Overall improvements and enhancements to your business

Disadvantages of a small business loan

Along with the advantages, small business loans also come with certain disadvantages that might sway your decision.

Strict eligibility criteria

When it comes to small business loans, lenders can sometimes be pretty strict about giving money to small businesses. Ultimately, this makes it tricky for new businesses to be accepted since they are viewed as a bigger risk.

Lengthy application process

If you’re not an established business, you may find it harder to be approved for a small business loan. This is because lenders can be wary of who they’re loaning money to.

Therefore, the application process for a small business loan can end up taking a long time. You’ll also need to fill out any relevant forms for each lender you’re applying for a loan from which make things more time-consuming.

Remember to double check that all the information on your application is correct before submitting. One mistake could mean that your small business loan application is rejected.

Secured small business loans can be risky

As with any secured loan, you could lose valuable assets if you’re unable to make your repayments. Obviously, it’s always important to meet each payment regardless of the type of loan. However, there is an added risk with secured loans.

What are other alternatives to a small business loan?

Perhaps you’re still unsure and want to explore other financing options?

Generally speaking, the purpose of a small business loan is to provide a short-term injection of cash into your business. This helps to cover costs that you can’t currently afford but will be able to pay back later over time.

If you need funding for ongoing expenses, a small business loan might not be the right choice for your business.

Even if a small business loan isn’t suitable, you can still bring money into your business through:

• Personal savings

• Loans from family and friends

• Crowdfunding

• Angel investors

• Equity financing

To find out more about what might be the best route for your business, check out our blog on small business financing options.

Start or grow your small business with Checkatrade

At Checkatrade, we’re here to support and help your small business whether you’re just starting out or keen to grow.

Already an official Checkatrade member? Make sure you’re taking full advantage of all of our membership benefits and partnerships.

We’ve also got a free business development strategy template that can help you lay out your plans and how you’ll achieve them. Pair that with our guide on writing a business plan and you’ll have all the tools you need to see your business succeed.

If this all sounds great to you but you’re not a member yet, what are you doing? Sign up today and see what we can do for your business!

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