How to get a business loan: a step-by-step guide for UK companies

To get a business loan, work out how much your company needs and why, check the repayments are affordable, review your credit, choose the right type of loan, gather your documents and apply to suitable lenders. The lender then checks your company, makes an offer, and pays out once the agreement is signed.

This guide walks through each step for UK limited companies, LLPs and partnerships of four or more partners. Each lender sets its own criteria, including minimum trading periods and turnover, so the detail can vary. The principles below apply to most business lending.

Lenders want to see a clear, realistic purpose. Be specific: buying a named machine, funding stock for a confirmed contract, paying a tax bill or covering a seasonal gap. A specific purpose helps the lender judge risk and helps you choose the right product.

Borrow what you need plus a sensible margin, not the maximum a lender might offer. Too little can leave the problem unsolved; too much adds cost and can make the application look less affordable. Think about the term too. As a rule of thumb, the term should match how long the money takes to pay for itself: a short gap in cash flow suits a short term, while equipment that will earn for years can justify a longer one. Matching the term to the purpose keeps repayments manageable without paying interest for longer than necessary. Our guide on how much a limited company can borrow explains how lenders size a loan.

Affordability is the question every lender asks first: can the company's cash flow comfortably cover the new repayments on top of existing commitments? Check this yourself before applying.

Lenders set their own minimum cover levels and look for headroom above 1, so that a quieter month does not cause missed payments. You can run your own figures with our debt service cover calculator. A realistic forecast also helps, and our guide to preparing a cash flow forecast for lenders shows what to include.

Check your company's credit file and, because many lenders also look at directors, your own personal credit file. Correct any errors and be ready to explain any past problems.

Things that commonly hold applications back include county court judgments, missed payments, a large number of recent credit searches and accounts filed late at Companies House. Filing accounts and confirmation statements on time matters, because lenders rely on the public record. If there is something on the file, a short written explanation of what happened and what has changed can help an underwriter.

The right product depends on what the money is for and how your company will repay it. The main options are:

• Unsecured term loan: a lump sum repaid over a fixed term, with no specific asset as security, usually with a personal guarantee.
• Secured loan: backed by business assets, which can allow larger amounts or longer terms.
• Short-term loan: for gaps of months rather than years, usually at a higher cost.
• Revolving facility: a limit your company can draw, repay and redraw.
• Asset finance or invoice finance: secured on the equipment being bought or on unpaid invoices, often a better fit than a general loan for those needs.

Our business loans section compares the main loan types, and our guide to business loan interest rates explains how each is usually priced.

Having documents ready before you apply is the simplest way to speed things up. Requirements vary between lenders and with the size of the loan, but typically include:

• The last two years of filed accounts, where available.
• Recent management accounts, especially if your year end was some months ago.
• Three to six months of business bank statements, often shared through open banking.
• Details of existing borrowing, leases and other finance.
• Identification and proof of address for directors.
• A cash flow forecast or business plan for larger or more complex loans.
• Asset details and valuations if the loan is secured.

Our business loan documents checklist covers each item in more detail.

When your company applies, the lender runs a full credit search and its underwriters review the documents. Expect questions, and answer them quickly and fully.

Lenders usually check:

• Credit history of the company and its directors.
• Trading history and the trend in turnover and profit.
• Bank account conduct, such as unplanned overdraft use or returned payments.
• Existing debt, including any tax owed to HMRC.
• The purpose of the loan and whether the amount is realistic.
• Security available, and whether directors will give personal guarantees.

Applying to many lenders at once can leave a trail of credit searches. It is usually better to check eligibility first and apply only where the fit is good.

If the lender approves, it issues an offer or agreement setting out the amount, term, rate, fees and conditions. Read it all before signing.

Check the total amount repayable, any arrangement fee and whether it is deducted from the advance, early repayment terms, and what happens if a payment is missed. Look closely at security. Many unsecured loans require a personal guarantee from directors, and secured loans may involve a debenture over the company's assets.

Some larger loans also include covenants, which are promises the company makes during the term, such as keeping debt service cover above a set level or sending the lender regular management accounts. Breaching a covenant can give the lender rights under the agreement, so make sure any covenant is realistic for your business before you accept it.

Lending to limited companies, LLPs and partnerships of four or more partners is usually unregulated, so Consumer Credit Act protections generally do not apply. Take independent legal or financial advice if anything is unclear.

Once the agreement and any guarantees are signed and the lender's final checks are complete, the funds are paid into your company's bank account or, for asset purchases, to the supplier.

Timelines vary. Some unsecured lenders can decide within a few days of a complete application and pay out shortly after signing. Secured loans that need valuations, searches and legal documents usually take several weeks. Delays most often come from missing documents or unanswered questions.

The strongest applications answer the underwriter's questions before they are asked. Small steps taken a few weeks before applying can make a real difference to the outcome and to the terms offered.

• Bring your figures up to date: recent management accounts show how the company is trading now, not just at its last year end.
• Explain the numbers: a one-off loss, a dip in turnover or a big tax bill is easier for a lender to accept with a short note explaining the cause.
• Keep the bank account tidy: staying within agreed overdraft limits and avoiding returned payments in the months before you apply helps.
• Deal with arrears: if the company owes HMRC, an agreed Time to Pay arrangement that is being kept to is usually viewed better than unmanaged arrears.
• Show how the loan pays for itself: for example, the margin a new machine will add or the profit on a contract the stock will fulfil.
• Be consistent: the figures in your application, accounts, bank statements and forecast should tell the same story.

Lenders set their own minimum trading periods, from a few months to two or three years, and their own turnover requirements. Companies with a shorter record or lower profits may still find suitable lenders, but the choice is usually narrower and the cost can be higher.

A decline from one lender does not mean every lender will say no. Lenders have different appetites for sector, trading history, credit and security.

Ask why the application was declined if the lender will say, fix what you can, and consider whether a different product, a smaller amount or offering security would fit better. Avoid making repeated applications in a short period.

Welcome Finance is a commercial finance broker, not a lender. We check your company's eligibility in about 60 seconds without affecting its credit score, then introduce you to suitable lenders on our panel. Lenders run their own credit checks once you decide to apply, and every lender makes its own decision, so approval is never certain.

You get a dedicated relationship manager by phone, email and chat, from your first enquiry until the lender pays out. They help you prepare documents and keep the application moving. We don't charge you a fee. We are paid a commission by the lender when your finance completes, and you can ask how much it will be. Commission can differ between lenders.