Unsecured business loans: what UK lenders look at

Lenders want evidence that the business is sustainable, and time trading is the simplest measure. Welcome Finance works with limited companies, LLPs and partnerships of four or more partners. Minimum trading periods vary by lender, and some prefer two years or more, particularly for larger amounts.

A longer history, with filed accounts to match, usually opens up more lenders and better terms. If your company is only just past its first year, recent management accounts and a clean run of bank statements help fill the gap.

Lenders check that your income comfortably supports the new repayments alongside your existing commitments. Some set a minimum annual turnover. Many will look at how much of your monthly revenue would be taken up by repayments.

Profitability matters too, though lenders understand that growing businesses may reinvest heavily. If your last filed accounts are out of date or do not reflect recent growth, up-to-date management accounts can help your case.

Most lenders ask for three to six months of business bank statements, and many now use open banking to view them directly. Statements show your real cash flow in a way accounts cannot. Lenders look for:

• Consistent income rather than large one-off spikes.
• How often and how deeply you use an overdraft.
• Returned direct debits or bounced payments.
• Existing loan or finance repayments, including short-term lenders.
• Gambling transactions or unexplained transfers to personal accounts.

A few months of clean, well-run statements can make a noticeable difference to the options available.

Lenders review the business credit file and usually the personal credit files of directors, LLP members or major shareholders. They look for payment history, county court judgments (CCJs), defaults, insolvency events and how much existing credit is in use.

Adverse credit does not automatically rule you out, particularly if the issue was small, historic and satisfied, but it can narrow the range of lenders and increase the cost. Our guide to improving your business credit score explains the practical steps.

Most unsecured business lenders ask directors, or members of an LLP, to sign a personal guarantee. This means that if the business cannot repay, the lender can pursue the guarantors personally for the amount guaranteed. The loan is unsecured in the sense that no specific asset is charged, but the personal risk is real.

Make sure you understand the guarantee's limit, whether it is joint and several, and what triggers it. Consider taking independent legal advice before signing. Our guide to personal guarantees covers this in detail.

Lenders want to know what the money is for. A clear, credible purpose, such as buying stock for confirmed orders, hiring staff to meet demand or funding a marketing push with a plan behind it, reassures them. Vague purposes, or using new borrowing to cover ongoing losses, are harder to fund.

If one of these areas is weak, it does not always mean waiting. A secured loan, asset finance or invoice finance may be available where unsecured lending is not, because the lender has something other than trading performance to rely on. Alternatively, a smaller initial loan repaid well can build a track record that opens up larger facilities later.

Sometimes the honest answer is to wait a few months: file overdue accounts, let a clean run of bank statements build up, or allow a recent credit issue to age. Applying too early and being declined leaves a footprint without moving you forward. And if the business is already struggling to meet existing repayments, more borrowing is rarely the answer; speak to your accountant first.

If one of the larger high-street banks turns down your application, it must offer to refer you, with your consent, to designated finance platforms under the government-backed Bank Referral Scheme, which the British Business Bank oversees. You can also approach other lenders or a broker directly.

• Repayments on existing loans or advances already take up too much of monthly income.
• Returned direct debits or regular unarranged overdraft use in recent statements.
• Accounts or the confirmation statement overdue at Companies House.
• Unsatisfied CCJs or recent defaults on the company or director files.
• Turnover that has fallen sharply since the last filed accounts, with no management figures to explain it.

1. Get your filed accounts and confirmation statement up to date at Companies House.
2. Prepare recent management accounts if your last year-end is more than a few months old.
3. Tidy your bank account: avoid returned payments and keep business and personal spending separate.
4. Check your business and personal credit files and correct any errors.
5. Know exactly how much you need, what it is for and how it will be repaid.
6. Avoid multiple applications in a short period, as each may leave a footprint on your file.

Welcome Finance is a commercial finance broker for limited companies, LLPs and partnerships of four or more partners. We match your profile against the criteria of a range of lenders before anything is submitted, which helps avoid unnecessary searches and declined applications. Check your eligibility in 60 seconds; our check does not run a credit search, so it will not affect your credit score.