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Are you an ambitious entrepreneur ready to take your small business to the next level? Or perhaps you're a budding startup owner with dreams of turning your innovative ideas into reality. Whatever your aspirations, one thing is certain: securing the necessary funds to fuel your business's growth is critical. That's where business loans come in, providing a financial lifeline to help you achieve your goals.

Similar to a personal loan, but for your business, a business loan allows you to borrow a prescribed sum of money that is later repaid to your lender with interest.

Whether you need financing to launch your venture, purchase new equipment or cover day-to-day expenses, a business loan can provide the financial funding and support you need. However, navigating the process of obtaining a business loan can be challenging, especially if you’ve bad credit or are unfamiliar with the requirements.

In this guide, we'll walk you through the steps of getting a business loan in the UK, taking into account the perspective of small businesses and the legal landscape.

How to get a small business loan

Obtaining a small business loan and checking your eligibility involves several key steps that you should consider:

Business loan with bad credit

Having a less-than-perfect credit history can make securing a business loan more difficult but not impossible. Many lenders offer business loans specifically designed for individuals with bad credit. These loans often come with higher interest rates or require collateral to secure the loan. Nevertheless, exploring these options can provide a lifeline for your business.

Business credit score

Before applying for a business loan, it's crucial to understand your business credit score. Lenders use this score to assess your creditworthiness and determine the terms of the loan. By improving your credit score through timely payments and responsible credit management, you can increase your chances of securing a loan on favourable terms.

Business loan requirements

Lenders typically require certain documentation when you apply for a business loan. Credit scores, annual revenue, business plan and collateral are the four cornerstones of applying for a business loan.

However, you'll need many other supporting documents to qualify for a business loan. This can include: 

  • Your driver's license
  • Any commercial leases
  • Business licenses
  • Personal and business tax returns
  • Business insurance plans
  • Payroll records
  • Incorporation documents
  • Other affiliated corporate ownership
  • Current added financial obligations

Applying for a business loan

Once you’ve gathered the necessary documents, it's time to apply for a business loan. Here are a few tips to help you through the application process:

Personal guarantee for a business loan

In some cases, lenders may require you, as the business owner, to sign a personal guarantee. This means that if your business fails to repay the loan, you’ll be personally liable for the debt. You should carefully review and understand the terms of the personal guarantee before signing, as it can have significant implications for your personal finances.

Secured vs. unsecured business loans

Business loans can be secured or unsecured. A secured business loan requires collateral and or assets as security, such as property or inventory, to secure the loan. On the other hand, an unsecured business loan doesn’t require collateral but often carries higher interest rates. You must assess your business's assets and financial situation to determine which type of loan best fits your needs.

Credit checks and cash flow

Lenders will conduct credit checks to assess your business's creditworthiness. They’ll also evaluate your cash flow to ensure that your business can afford to repay the loan. Maintaining healthy cash flow and managing your business expenses responsibly will increase your chances of loan approval.

Are loan payments tax-deductible for a business?

One important aspect to consider when obtaining a business loan is the tax implications. In the UK, loan repayments are generally not tax-deductible expenses. However, the interest paid on a business loan can be deducted as a business expense, reducing your taxable income. It's advisable to consult with a tax professional to understand the specific tax regulations and implications for your business.

How to get a first-time business loan

If you're a first-time business loan applicant, the process may seem overwhelming. However, by following these steps and seeking guidance from legal and financial professionals, you can navigate the process with confidence:

Step 1: Prepare a comprehensive business plan and have all your documents to hand – a well-crafted business plan helps demonstrate your business's potential and ability to repay the loan. Include detailed financial projections, market analysis and an overview of your products or services. This document will showcase your business's viability and attract lenders. Having all your documents to hand can speed things up (e.g. bank accounts, statements, accounts, etc).

Step 2: Open a business account – depending on the type of loan, having a separate business account demonstrates financial organisation and separates your personal and business finances. It also allows lenders to evaluate your business's financial health more accurately.

Step 3: Explore small business financing options – in addition to traditional banks, consider exploring alternative lenders, government-backed loan programs, or crowdfunding platforms. These options may offer more flexibility and tailored solutions for your business needs.

Getting a business loan in the UK

The process of obtaining a business loan in the UK is influenced by local laws and regulations. It's important to know your rights and responsibilities as a borrower. Always look out for specific terms and conditions and particularly as mentioned above, remember that in some cases, a loan may require a personal guarantee, so be prepared. By partnering with a trusted legal service provider, such as LawBite, you can ensure that your Loan Agreement is fair, transparent and working in your favour.

Get legal assistance from LawBite

Securing a business loan in the UK requires careful planning, preparation and understanding of the legal landscape. By following the steps outlined in this guide, you can increase your chances of obtaining the financing your small business needs. Remember to consider your credit score, gather the necessary documentation, explore loan options and seek legal advice to ensure a smooth and successful loan application process. 

At LawBite, we believe in doing law differently. Our customer-centric approach makes legal services more accessible for entrepreneurs and small to medium-sized businesses. We offer practical and tailored legal solutions to meet your needs, ensuring you're protected and positioned for success. Trust us to guide you through the legal landscape and provide exceptional service at every step of your business journey.

If you require support with reviewing a Loan Agreement or a loan application, book a free 15 minute consultation with one of our expert lawyers, or call us on 020 3808 8314.


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In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.

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