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How to get a business loan in 5 steps

By January 2, 2020 No Comments
Piggy bank

Is it your first time applying for a business loan online? There are loads of lenders out there, but they’re definitely not all created equal. So how do you find the one that’s right for you and your business? What do you need to do to qualify? Do you have to have a business plan and an amazing credit score? What’s a “good” rate for an online loan?

Piggy bank

It might sound complicated at first, but don’t worry – it’s really not. Online lenders are actually known for making the process a lot easier than the big banks. But that being said, it helps to have some knowledge under your belt before you apply and to know what you need to do to get a good rate, avoid the pitfalls – and set yourself up for success.

#1 Learn what kind of financing is out there

If you haven’t already done your research on the kinds of loans available to small businesses, you should definitely start there. There’s everything from traditional bank loans (which are great if you’ve got good credit, been in business for a while and aren’t in a rush), to crowdfunding (a fun option, but really only for smaller amounts).

People pointing to diagram

Not sure what the options are? Check out our ultimate guide to financing your business.

#2 Get your financial ducks in a row

If you’ve got all your documents ready to go before you even apply, things will be so much faster and easier. Plus, it’ll show you’re organized – and a desirable candidate for a loan.

Tax forms

Here are a few tips to help you get set up:

  • If you haven’t already, register your business name and open a business bank account – Presenting yourself as a real business shows you’re serious about it. (Nothing strikes fear into the hearts of lenders like a business that doesn’t look like it knows what it’s doing.)
  • Get your books in order – Digital bookkeeping platforms like QuickBooks, Xero or FreshBooks can help you manage your finances, no matter how simple or complicated they are. And when you’ve got a handle on your finances, it’s easier to prove you’re a good candidate for a business loan.
  • Keep your business and personal finances separate – Are you paying invoices with your personal credit card? Putting your profit into family savings? Stop! Keep things clear by having a separate account and credit card under your business name. That way your business will have a credit history that’s separate from your personal one, which, when you’re applying for a business loan, is a very good indeed!

#3 Do your homework on lenders

The world of business loans isn’t as regulated as the consumer loans industry, which has to follow FCA regulations. Small business lenders are mostly self-regulated, which is good in some ways – it leaves the door open to more innovation around products and terms – but can also mean running into some “borrower beware” situations. And while it’s not exactly the wild, wild west out there (it’s really in lenders’ best interests to treat customers well), business lending definitely has a greater range in terms of quality and options, with each lender weighing things differently. So doing your research when you’re shopping around for a loan is always a good idea – look at reviews on sites like Trustpilot to weed out the bad apples.

Man using a laptop

Another good tip is to only apply to your top choices – not to every lender you come across. Applying everywhere in the hope someone says yes can work against you. Some lenders will check your credit report, and every time this happens, your score could take a tiny hit. Too many hits will make your credit look worse than it really is!

Here are some things to keep in mind as you look for the right lender:

  • Have a solid business plan – Even if your lender doesn’t ask you for one, it’s a good idea to have a plan anyway. It will help you organize your ideas, better understand your market and your audience – and clarify your best strategies for growth and success. Plus, it will help you wrap your head around your expenses and cash flow, which will pinpoint how much you need to borrow – and how you’ll be able to comfortably pay it back. But don’t panic if you don’t have a business plan – when you apply for a business loan from Boost Capital, we won’t ask for one!
  • Look for a lender that rewards loyalty – All businesses know it’s easier and cheaper to keep existing customers than to attract new ones. Well business lenders are no different. Some lenders who are looking to build long-term relationships will offer you perks for coming back for more funding, such as discounted rates and better terms. Even if it’s your first loan with them, it doesn’t hurt to ask what the next one will look like. And the one after that!
  • Ask ALL the questions – You need to understand what you’re applying for. Are you clear on terms, rates, fees, etc.? What’s the interest rate on the loan? Will it vary over time? Will your payments be daily, weekly or monthly? Are those payments realistic? Are there limits on how you can use the money? Can you pay early without a penalty? Do you need security or collateral? What’s the APR?
  • Figure out the right amount – Be clear with yourself about why you need the loan – what are you going to use it for and how much do you need? Smoothing out cash flow between busy seasons, buying equipment, or ? Base your request on specific needs, not ballpark estimates: if you borrow too little, you won’t have enough to cover your expenses. Too much, and you’ll end up paying more interest than you need. Look at your sales and see how much you can pay back each day/week/month, and how long it will take overall, taking seasonal trends into account.

#4 Get your documents ready

Put together a list of the documents your lender is looking for and get them organised before you apply. If you’re applying online, scan everything so it’s ready to go. Here are some commonly requested items (specifics may vary for each lender):

  • The name of your business, including any other trading names (if you’re operating under a name that’s different from your legal one, they’ll want to know)
  • Your driving license and/or passport
  • Your VAT number (if you’re registered for VAT)
  • Your company number (if you’re a limited company)
  • Your legal structure (are you a sole trader? Partnership? Limited company?)
  • Your annual turnover

#5 Check your credit – business and personal

Lenders like to see a history of on-time payments on loans and credit cards. If there’s anything wrong, contact your bank to have it updated. A great score doesn’t just help you qualify for a loan, but also opens you up to better rates and terms. And don’t forget, your personal score counts too.

Paying by credit card

Worried your business credit score might be too low? Have a look at our guide to find out how you can build it up.

Just keep in mind that your credit score isn’t everything –lenders have other ways to figure out who’s eligible. Digital algorithms and underwriting methods factor in things like cash flow, yearly turnover, industry, how long you’ve been in business and financial forecasts. And also remember – if you’re new to the game or your credit score isn’t great, you may still be able to borrow. Your options will just probably be a bit more limited, and you may pay higher interest rates.

Getting a business loan takes a bit of work…

…but once you’ve laid a solid foundation for success, the financing is sure to come – and so is the growth you want to see for your business.

Need capital for your small business?

Apply today and you could have the funds in as little as two business days.

Alex Littner

Alex has more than 15 years of experience in business development, marketing and product management. Before he joined Boost Capital, he led the development and growth of one of American Express's key product lines.

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Alex Littner

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