How to apply for a limited company business loan

business bank loan

Business operators regularly rely on business loans in order to start or expand an enterprise. Whilst many also rely on alternative investment options, business loans are a common way to access funding.

Used to establish a brand, take on new premises or launch new products and services, owners of limited companies can make a significant return if they choose the right loan.

Of course, any type of loan or financing requires serious consideration. There are various types of loans aimed at limited companies and directors may find that some are more appropriate than others. In addition to this, loans tend to have differing eligibility requirements, so businesses may find that they are exempt from applying for some financing options.

The Government-backed Start Up Loan scheme, for example, may be aimed at companies which are not yet trading or businesses which have been in operation for a small amount of time. Intended to help businesses get off the ground, these may be limited to enterprises with a turnover less than a specific amount or enterprises with few staff.

Whilst most small business loans can be used as the company sees fit, lenders will typically want to know why you’re applying for the loan. In some cases, the terms and conditions may stipulate what the funds can be spent on, so it’s vital that the intended expenditure is fully transparent.

If you apply for a loan on the basis of acquiring new premises, for example, the lender may not permit you to subsequently use the funds on the purchase of new stock instead. With strict terms attached to any contract, business owners will need to be aware of the regulations governing them once their loan has been approved.

What should you look for from prospective providers?

Although it may be tempting for business owners to approach a number of prospective lenders, they will need to consider their options carefully. Not all loan providers will offer the same terms and it’s always beneficial to get the most generous terms. A low interest rate, for example, will reduce the overall amount which must be paid back and is, clearly, one of the most important things to consider when you’re applying for finance.

In addition to this, potential borrowers may want to consider the implications of a variable interest rate, as opposed to a fixed rate loan. Typically, a fixed interest rate may be slightly higher than a variable rate but, as it is fixed, it won’t change during the course of your repayments. This allows businesses to predict their expenditures with accuracy and ensures that their outgoings won’t increase if interest rates rise.

Similarly, the option to pay back a loan early should be considered before you commit to borrowing. Whilst most lenders will allow you to do this, some loan providers charge hefty fees in order to make early repayments. Choosing a lender which will allow you to make these repayments without additional charges may be one of your top priorities if you anticipate being able to repay the loan early.

Payment ‘holidays’ aren’t offered by all lenders but they can be extremely useful and are worth discussing with potential providers. Should the business face a period of reduced income or increased expenditure, the option to miss a payment or suspend loan repayments can be beneficial.

With various loan options available, it’s crucial that business owners and directors identify the terms which are most suited to their needs. Whilst the business’s circumstances may not enable them to obtain every loan condition they would like, identifying the most advantageous terms will enable them to focus their search.

What details do you need to apply for a small business loan?

When applying for a small business loan, you will need to have various types of documentation. If the business is already trading, a potential provider will want to see existing accounts, as well as predicted cash flow. Similarly, both new and existing companies will benefit from providing potential lenders with a business plan. This will enable them to outline why the loan is needed, what it will be used for and how it will be paid back. By reassuring lenders of the viability of the business, directors and owners may increase their chances of successfully obtaining funding.

Although providers will want to know about the business, such as any assets it holds and the proven interest from its target demographic, they may also want to know more about the directors, owners or operators. Providing information regarding your contribution to the business, both in terms of skills and finance, should help when it comes to obtaining a loan.

While lenders will want to see evidence that the loan can be paid back in accordance with the relevant terms, they are keen to provide a loan when it is possible to do so. With a justifiable business plan and evidence of the business’s operations or potential, owners and directors can obtain small business loans with relative ease.

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