Getting your business ready for a loan

Most company directors borrow for the business at some point.

Each lender sets its own rules, and none of them publishes a simple pass mark. This page explains what lenders usually look at and how to prepare an application, with a short note at the end on what you can do if one says no.

What a lender wants to know

A lender wants to know that the business can repay. For a loan without security, the lender looks mainly at how the business is trading.

It may also check the credit history of the business. It may look at cash flow, the balance sheet and how much cash the business holds.

Before you apply

A lender checks an application closely, so a decision can take longer than people expect. Gathering the business documents before you apply can help avoid delays.

The British Business Bank suggests getting independent advice that fits your own business before you apply. Free business support is available by phone or online in England, Scotland, Wales and Northern Ireland.

Your business credit file

Credit reference agencies keep files on businesses as well as on people. Under rules made in 2015, the banks designated by the Treasury share information about their small business customers with the designated credit reference agencies. They do this when the agency asks and the business agrees.

Other lenders can see that information only with the business's consent. A business has a right to see what a designated agency holds about it, and to have mistakes put right.

Security and personal guarantees

A secured loan is backed by something the borrower owns, such as property or equipment. If the loan is not repaid, the lender can take the asset and sell it.

Using property as security can bring costs of its own, such as valuation and legal fees. Those costs may still be due if the application is turned down.

A loan without security often still needs a personal guarantee from a director. That makes the director personally responsible if the business cannot pay. Read the guarantee carefully before you sign it.

If a bank says no, or something goes wrong

A refusal from one lender is not a refusal from every lender.

If one of the designated banks turns down an application, it must offer to refer the business to designated finance platforms. The platforms then contact the business about other finance providers. Nothing is passed on unless the business agrees.

A business can also approach other platforms, brokers and lenders directly.

Start with the lender's own complaints process.