In this guide

Looking to boost your cash flow, or want to hit your business goals? Read ahead to discover how business loans work, a step by step outline of the process and tips for a successful business loan application. 

  1. Understanding business loans
  2. How to get a small business loan
  3. What can you use a business loan for?
  4. What type of business loans are there?
  5. How does getting a business loan work with Capitalise?
  6. How long does it take to get a business loan?

Understanding business loans

A business loan is a type of borrowing, designed to provide companies with access to the capital. It essentially acts as an agreement between your business and a lender where the  lender provides your business with a specific amount of money, and in return, your business agrees to repay the borrowed funds, usually with interest, over a predetermined period.

Want to find out how much your business can borrow?

Use our free loan calculators

How to get a small business loan

1. Understand your business needs

Before diving into the loan application process, you’ll need to have a clear understanding of why you need the funds. Are you looking to hire new talent, invest in marketing, expand your product line, or purchase new equipment? 

Different lenders and different types of business loans will have varying criteria and terms based on your needs, so having a well-defined purpose for the loan is an important step before applying.

 

2. Assess your creditworthiness

Lenders rely heavily on your business credit score to evaluate your eligibility. Make sure you check your business credit score to ensure the information is accurate and up-to-date. If there’s any negative factors impacting it, make sure to work on fixing these first before applying for a loan. This will be important as a good business credit score can significantly improve your chances of approval and accessing more favourable and affordable terms.

Improving your business credit score can take a bit of time as credit bureaus report on a monthly basis. If you need to improve your credit score quickly, you can use the Credit Review Service. This allows you to provide updated information to Experian, in 96% of cases this results in an improvement in as little as 48 hours. 

 

3. Find out your business lending options

There are hundreds of business lenders in the UK, all offering a wide variety of finance options. How your business operates and what you need the loan for will impact which lenders might be best suited for your business. 

When you search for a business loan with Capitalise, you’ll receive dedicated support from our team of experts. They’ll match you with lenders that will be best suited to your needs and most likely to approve you for a business loan.

 

4. Understand how much you can borrow 

You’ll need to find out how much your business will be able to borrow before you start applying. This ensures that your expectations are in line with what you could be eligible for and allows you to consider how much could be comfortable for your business to afford in repayments each month. 
You can use a business loan calculator to see how much you could borrow and understand what your monthly repayments could look like. 

 

5. Gather supporting documents

Lenders will require various documents to assess your business's financial health and come to a decision on your business loan application. 

You should gather the following documents so that you’re prepared to apply: 

  • 6 months business bank statements 
  • Most recent set of company filed accounts 
  • Details on what your business does and what you want to use the funding for 
  • Depending on the type of business loan, you may also need to gather documents such as your aged debtor report, or your electric point of sales (EPOS) statements. 

 

6. Submit your business loan application

Now it's time to submit your loan application. You should be prepared to answer questions about your business, provide financial details, and explain your plan for using the funds. 
Completing the application accurately and providing enough details will improve your chances of approval. The quicker you can get all the information that the lenders require ready, the quicker you will be able to access the funds you need. 

What can you use a business loan for?

There are a variety of reasons a company might seek a business loan, including: 

  • Working capital to cover day-to-day expenses
  • Business expansion
  • Purchasing equipment, machinery or vehicles
  • Purchasing, renovating, or expanding commercial properties
  • Refinancing multiple existing loans
  • Purchasing more stock 
  • Investing in marketing campaigns and advertising
  • Upgrading or implementing new technology, software, or systems
  • Funding research and development projects
  • Recruiting and training new employees

What type of business loans are there?

There are various types of business loans available, each are tailored to different business needs. The different types of business loans are: 

 

Long term loans

Long term business loans offer a substantial sum with fixed monthly payments over several years, making repayments manageable. These types of loans can be suitable for strong businesses with 2+ years of trading history, a good business credit score and demonstrated profitability.

Short term loans 

Short term business loans provide quick access to capital with short repayment periods, perfect for covering immediate expenses like stock, payroll, or emergencies.

Peer to peer loans

Peer to peer loans connect borrowing businesses with multiple investors through an online platform. These loans offer businesses an alternative source of finance and can be used for almost any business purpose.

Merchant cash advance

For retail businesses, a merchant cash advance offers upfront cash in exchange for a percentage of future card sales. The amount you can access with a merchant cash advance is typically 1.5 x monthly turnover from card sales. 

Asset finance 

Asset finance allows businesses to acquire assets like machinery or vehicles without a large upfront payment through leasing, hire purchase, or contract hire. 

Invoice finance

With invoice finance you can borrow money against outstanding invoices. Options include selective invoice finance, invoice factoring, and invoice discounting. Which is suitable will depend on whether you want to retain ownership of your credit control and if you want to borrow against all of your debtor book.

Revolving credit facility 

A revolving credit facility provides access to a pre-approved line of credit as needed, giving flexibility for managing short-term cash flow fluctuations. The business can repeatedly draw funds up to the specified limit, repay them, and then borrow again. 

Property finance

Property finance allows businesses, or individuals, to purchase, develop and invest in property for commercial purposes.

  1. Bridging loans are short term and used to bridge the gap between the purchase of an asset and securing a longer term solution. They can be useful if you’re looking to buy a property at auction, or need to finish a development project. 
  2. Commercial mortgages are used to purchase property with repayments spread over a longer period. A commercial mortgage will require a business to have at least a 25% deposit. 
  3. Development loans are a type of property finance that are used to carry out the construction and renovations of a property. 

How does getting a business loan work with Capitalise?

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1. Check your business loan eligibility
The first step is to understand how much your business can borrow. Just sign up to Capitalise for business and we’ll use your Experian business credit profile and publicly available data from Companies House to calculate your funding eligibility.
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2. Tell us about your business
Once you’ve started your application, you’ll need to provide a few details such as your business name, age and how much you’re looking to borrow.
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Capitalise pool of 100 lenders in the UK
3. We match you with a lender
From our panel of 100+ lenders, we match you with lenders most likely to approve you for a business loan. One of our expert funding specialists will talk you through which lenders and types of business loans will suit your needs. They’ll let you know which documents you need and put together your application.
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4. Apply up to 4 lenders in one application
Once all your documents have been uploaded to your application, you can apply up to 4 lenders at once. Use your Capitalise for Business account to easily upload your documents and keep track of the status of your application.
Capitalise pool of 100 lenders in the UK
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5. Get a business loan in as little as 48 hours
One of our funding specialists will talk you through each of the lender decisions and help you understand any terms. With an approval, you could receive funds in your account in as little as 48 hours from releasing your application.

How long does it take to get a business loan?

How quickly you can get a business loan will depend on the type of loan and the lender that you choose to apply to. Generally, larger amounts and more traditional lenders, such as high street banks, can take longer approval times as there are more steps involved in their review and approval process.

 

Which type of business loans are quicker to get?

Unsecured business loans tend to be a quicker option as their approval is based on factors such as the business’ financial position, their cash flow and business credit score which can usually be done through an online platform.   

With Instant Offers available on Capitalise, you could receive an instant decision and receive funds in as little as 48 hours. 

 

Which type of business loans can take longer?

Secured business loans often take longer as the lender will need to value the asset or assets being used as security.

If you’re looking for a commercial mortgage, you can expect it to take a few months or more to secure the funding. This is because there will be more parties involved in the process, such as surveyors and solicitors which could all cause delays. 

Large business loans ( £250,000+) could also bring longer approval times as the level of risk for the lender is higher, so they will have more stringent review processes. 

frequently asked questions

Most lenders require at least a few months of trading history, so as a startup business it can be tricky to find funding. However there are lenders that specialise in startup loans, so it can be possible. Just bear in mind that a startup business loan might have more expensive interest rates, shorter terms and lower loan amounts due to the higher level of risk for the lender. 

While there may be fewer options available in the market, you can get a business loan as a sole trader. At Capitalise we work with 100+ lenders, so our experts can help you find funding for your business. 

Yes, you could use a business loan to buy a business. For example, if you are part of the business’ existing management team, you could use management buyout finance to buy a business. If you’re looking to buy a business, just speak with our funding specialist team who can help you to find the right option. 

To be eligible for a business loan, you’ll likely need at least 6 months trading history and a good business credit score. Once your business hits 2 years old, your eligibility for funding increases, so you will be able to access more options. 

Yes, there are some business grants available for start ups. You can see which business grants are available from the government website.