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Application Criteria for UK Business Loans

Not to worry - the world of business loans isn't nearly so confusing with an experienced broker to guide you through the process!

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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Application Criteria for UK Business Loans

Applying for a business loan can feel nerve-wracking - with many of our clients asking questions such as:

  • How do you know whether you're going to be approved?
  • What supporting information is a lender going to ask for?
  • What next if my selected loan provider says no?
  • Is this going to cause a problem with my credit report?

Not to worry - the world of business loans isn't nearly so confusing with an experienced broker to guide you through the process!

Here are our mortgage brokers team explains what criteria a lender will look for to decide whether to lend to you and the numerous types of business loans you have to choose between.

For more help understanding your business loan eligibility, please give us a call on 0330 304 3040 or email us at [email protected].

How to Get a Small Business Loan

Let's start by talking about high street banks, given that most small businesses will turn immediately to their mainstream banking provider if they need a loan.

The issue is that many banks don't offer a vast number of business loans, and many will only lend to pre-existing customers and not to businesses that don't hold other products with them.

Generally, a bank will consider a small business loan application based on:

  • The security you can offer - usually premises or business equipment.
  • How long you have been trading - they'll often look for at least a few years.
  • Your balance sheet - banks may have a minimum net asset value they'll consider appropriate.

If you do qualify for regular bank lending, you might get a decent interest rate.

Still, it pays to have independent advice since the application process can be arduous.

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Can I Apply For Small Business Loans Bad Credit Specific?

The next option is to consider a challenger bank. Generally, the products on offer are comparable to those on the high street, and costs aren't wildly different.

Most challenger banks have more flexible criteria and will consider lending to a broader range of businesses.

If you're a new firm or have circumstances such as bad credit, you might find a business loan through a challenger bank, but it's only slightly more likely than through a regular mainstream bank.

Cash Flow Loans For Small Business Start-Ups

Our next option is to look at smaller specialists and independent lenders, most commonly offering business loans through their network of brokers.

Larger independents offer some of the best alternatives to regular banks, with fewer restrictions and a far broader scope of potential clients and sectors.

Some independent lenders offer a specific product or range of loans, and others provide the full range of business finance, so there is a lot of coverage here to find competitive loans if you fall outside of the criteria of a high street bank.

Specialists are another great option, particularly for businesses with bad credit issues or new start-ups that can't meet the typical qualification criteria.

Are There Small Business Loans Bad Credit Permitting?

Applying for a loan with bad credit in the background can be tricky, but the good news is that you're probably still eligible for a range of business loans, even if your credit rating isn't great.

It is always more challenging to secure a reasonable rate with bad credit.

Still, plenty of options are available, such as providing a personal guarantee or offering additional security to mitigate the lender's risk.

The downside is that a business loan with bad credit will usually command higher interest rates.

How Do I Qualify For Large Business Loans?

Banks have different definitions of a large business loan. Generally speaking, a UK business can borrow between £1,000 and £15 million on the open market.

The maximum you can borrow depends on multiple factors, such as:

  • How long you have been trading.
  • What security you can offer.
  • The purpose of the loan.
  • Your average annual turnover.
  • The average profit margin.

Lenders will look at affordability and your credit history to judge whether they think you will be able to pay the loan back in full, along with the applicable interest.

What Are the Average Interest Rates on an Instant Business Loan?

Every business loan will charge interest, but the exact rates will vary depending on the risk profile associated with your business.

As a basic rule, the higher the risk, the higher the interest charges.

Most lenders will base this on your credit rating, which is a good indicator of the kind of interest you can expect to pay.

Risk is also impacted by the length of the loan term and the security you have to offer as collateral.

Therefore, you can improve your business loan interest rates by providing better security or being flexible with the repayment term.

What Happens If I Need an Instant Business Loan With No Credit Score?

While we've talked about the implication of bad credit, having no credit score isn't usually as big a deal in a business loan application as in an individual loan.

Lenders will look at your credit file, not necessarily a score, and you will have a credit file even if you haven’t ever taken out any credit facilities through the business.

Fast business loans are generally based on generic criteria such as how much you want to borrow, your average turnover, and the strength of the business.

How to Get a Small Business Loan From Day One?

Getting a loan for a start-up is inevitably a bit more complicated. You won't have any trading history or track record for a lender to evaluate as a new business.

Few mainstream banks offer start-up loans since they aren't keen on higher risk propositions and won't usually get a start-up small business loan through the underwriting process.

However, there are many alternative business finance loans, and if you've been trading for a year or two, an experienced broker can undoubtedly put some options on the table!

Application for criteria vary, but generally, you'll need to:

  • Either have started trading or be about to register a business entity.
  • Provide information about your intended formation (such as limited company, LLP, sole trader or self-employed business).
  • Give the lender a copy of your business plan.
  • Itemise what you're planning to do with the loan, and show how that cash will tie in with your marketing strategy.

Flexible lenders will usually want to discuss the aims of the business and look at projections to decide whether they're willing to take on the risk of extending a credit facility.

What Is the Typical Unsecured Business Term Loan?

The loan term available depends on the type of business loan you're applying for. A typical short-term unsecured loan will go up to around five years as a maximum.

Secured loans secured against property could be significantly longer, so you must work out how much you need to borrow and seek independent advice from a broker before identifying the most appropriate business loan product.

One of the best ways to speed up your loan application is to have all of your documentation ready and available before you apply.

That includes accounts, cash flow forecasts, bank statements, and anything else relevant to your application.

Can I Get an Instant Decision on an Online Business Loan?

Possibly, yes. Suppose you're looking for a fast business loan to resolve a short-term cash flow issue or finance an inventory purchase.

In that case, we might be able to arrange a fund release on the same day - again, if you've got all the documentation ready.

Quick loans are usually short term and an unsecured loan that is repaid relatively quickly.

How Do Cash Flow Loans for Small Businesses Work?

Short-term business loans usually last for anywhere from three months, so they're a great option if you need a quick fix.

Other options include revolving credit facilities, or business overdrafts, so a loan isn't the only available solution.

If you're interested in learning more about any business loan types explored here, please give us a ring on 0330 304 3040 or email the Revolution team at [email protected].

We'll consult on your circumstances and borrowing requirements and then advise on the best loan solutions that match your business needs.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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