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How Can You Secure a Bank Loan for Your Business?

If you’re starting a new company, expanding an existing venture, or looking to improve cash flow, you might consider applying for a business loan. Delve into our guide to explore your options and discover how to create a successful loan application.

person taking a bank loan for business

Reasons to Take Out a Business

Loan Businesses often seek loans for various reasons, including:

  • Starting a new business
  • Expanding a business
  • Hiring new staff
  • Buying new equipment or technology
  • Enhancing cash flow
  • Acquiring new stock

The current economic downturn has increased costs for businesses due to rising inflation, soaring energy prices, declining consumer spending, and the Ukraine war’s impact. In some situations, a business loan could be a solution.

You could use a loan to boost marketing activities or invest in new technology to streamline operations and enhance productivity.

Different Types of Business Loans in the UK

UK businesses have access to various types of loans, catering to both short and long-term needs, and available as either secured or unsecured loans.

Secured Business Loans:

For these loans, you must provide an asset as collateral. Typically, businesses use property; however, banks might also accept equipment, machinery, and vehicles as security. Therefore, if you fail to repay the loan, the provided security is at risk.

Unsecured Business Loans:

These loans don’t need an asset for security, but you often have to give a personal guarantee for the payments. This means if your business can’t pay back the loan, you are personally responsible.

Also, loans can have fixed or variable interest rates.

Fixed Rate Interest Loans

Fixed Rate Interest Loans offer certainty, but you may face early repayment fees.

Variable Interest Rate Loans

Variable Interest Rate Loans provide more flexibility, but an interest rate hike leads to higher repayments.

Be Clear on Your Loan Purpose

Banks need to clearly understand why you want a loan and where your business is heading. A good business plan is very important for this. It should show your knowledge of the industry, how you plan to fill a gap in the market, and what your business aims to achieve. It should also include your predictions for sales, profits, and cash flow.

To make your business plan strong, work with your accountant. A well-thought-out plan can really help your chances of getting your loan approved.

Show How You Will Repay the Loan

preparing cash flow forecast

Banks want to be sure you can pay back a loan before they approve it. That’s why it’s important to have clear cash flow forecasts. These forecasts show how much money you expect to come in and go out of your business, and any extra money you might need.

You should work with your accountant to make these forecasts. This helps you show off your business and its potential to grow in the best way.

If you’re applying for a loan because your business costs are going up, you need to explain how you’ll pay back the loan. For example, if you need the loan for more marketing to grow into new markets, make sure to show how this growth will help you pay back the loan.

Shop Around for Loans

Just because you have an account with one bank, it doesn’t mean you’re limited to them for your business loan. It’s a good idea to compare different lenders. This includes online challenger banks, and you should look at their interest rates, repayment terms, and the types of loans they offer. Also, keep an eye out for any special offers or extra benefits that could help your business.

Additionally, think about programs like the Recovery Loan Scheme, which might make it easier to get funding from certain banks.

Finally, talking to your accountant about your loan options is a smart move. They might be able to introduce you to specific lenders, which could be beneficial.

Recovery Loan Scheme

The UK government started the Recovery Loan Scheme (RLS) in April 2021 to help businesses during the COVID-19 pandemic. This scheme ended in June 2022, but they launched a new version in August 2022 to assist companies dealing with rising costs. Businesses can find lenders for this funding on the British Business Bank website.

Need more help with bank loans? Reach out to our experts at Count for all the information and guidance you need!

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