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A Step by Step Guide to Applying for a Small Business Loan

nvesting in your business with a loan can provide a number of opportunities, whether you are looking to expand your business or hire experienced staff. Preparing your business beforehand could increase your chances of getting approved.
A Step by Step Guide to Applying for a Small Business Loan

Join the Esme team as we go through the business loan application process step by step, as well as tips on how to prepare your business before applying.

What is a small business loan?


A small business loan is an agreed sum of money that is lent to a small business from a bank or alternative lender. The amount lent and the repayment term are agreed between the lender and borrower, then paid back in the agreed time.

There are various types of loans available to small businesses that offer a number of benefits depending on how you intend to spend the loan. All business loans will fall into one of two categories: secured and unsecured.

Secured loans

A secured loan is when the borrower is required to provide an asset in case the business is unable to repay the loan. If the loan is not paid back, the lender can seize the asset in order to cover their losses.

Unsecured loans

An unsecured loan is when an asset is not required by the lender in order to get a business loan. It’s particularly useful for businesses that may not have an asset to secure a loan against. Personal guarantees are usually required for this type of loan, which means the business owner is liable if the business is unable to pay the loan back.

You can find out about the various loans available for SMEs by reading our how to get a business loan guide.

Why you should apply for a business loan?


Having a business loan gives you the opportunity to invest in your business and potentially improve its future prospects and profit. Business loans are most commonly used for:

  • Managing cashflow – Every business can experience issues with managing cashflow. A business loan could help cover any unexpected or large bills, especially if you’re waiting for a large invoice to be paid that could affect your business’ operation cycle.
  • Funding an expansion – Whether you’re upscaling to larger premises or looking to expand your team, a business loan help cover the costs that could quickly occur when growing your business. A business loan could also help cover any unexpected costs that may arise during the transition.
  • Buying inventory – If your business sells a product, you’ll need stock or materials in order to make the product. A business loan could help finance additional inventory that can be converted to cash. It could also give your business the opportunity to buy the best products or in bulk for a potential further discount which could improve your working capital.
  • Investing in new or more equipment - investing in good quality equipment can save you a lot of money in the long run. A business loan could help finance purchasing equipment and allow you to choose a repayment plan that works better for your business and cashflow.
  • Hiring more staff – Having the right staff is vital to the success of your business. Getting the right staff can be expensive; therefore a business loan could help you cover the costs, such as recruitment fees or initial wages.
  • Buying a company vehicle – Many UK SMEs rely on transport in order to provide their service or product, whether that’s delivering a piece of furniture or fixing a leaking pipe. A business loan could fund a vehicle to help provide a better service while paying your loan back in manageable instalments.
  • Improving or implementing a marketing strategy – A marketing strategy is crucial in order to get your brand out there and recognised by customers. A business loan could help finance additional costs such as TV advertising, social media advertising or PR activity. It could also help fund professional advice from an agency or consultant to help form and execute your marketing strategy to the maximum effect.

How to apply for a business loan


If you’re looking to get your loan quickly and streamline the application process, it’s important to take active steps in preparing your business to increase your chances of getting approved.

1. Know what you want

Before finding a business loan or lender you must know exactly how you want to spend the loan. This will shorten the application process, as many loans will require a detailed business plan or a short summary that describes how you intend to spend the loan.

You also need to know exactly how much you’re looking to borrow from the lender. The figure should be enough to cover your business plans, but also be achievable for your business to pay back over a chosen period of time.

The best way to choose the right repayment term that works your business’ cashflow, is to look at how much your business could realistically afford to pay back each month.

For example, if you’re looking to borrow £20,000 but can only afford to repay a total of £500 a month including interest, you could use the lender’s business loan calculator to find the repayment period that allows you to stick to your monthly budget.

2. Look at your business’ credit history

Every business has a credit score, similar to how a personal credit score works. Most lenders will check your business’ credit when you apply for a loan with them. Therefore, checking your business’ score before applying for a business loan gives you the opportunity to improve it and increase your chances of getting your application approved.

If your business score is low, you can take steps to improve it such as paying bills in advance or using a business credit card for everyday expenses. To find out more on how to improve your business’ credit history, head over to our blog.

You can also check your business credit score with Equifax and Experian.

3. Review your finance options

Now you know your loan amount and repayment budget, you can begin to research the various finance options available to businesses. How you intend to use the loan, as well as your repayment budget and loan amount, will help narrow down your options.

It’s equally as important to find the right lender and take active steps to ensure they are offering a legitimate service that does not put your business at risk. You can read more about how to find a legitimate lender on our blog.

4. How quickly do you need the loan?

Various business loans and lenders offer different processing times. For instance, if you choose a business loan from a bank, your application could be significantly more time consuming than with an online lender, who usually offer a quick online application form.

If your loan is time sensitive, it’s always worth checking with the lender before applying.

5. Check that your business is eligible

Every lender will have a set of eligibility requirements that you must meet in order to be accepted for a business loan. These can vary from the number of years your business has been trading to your business’ annual turnover.

To improve your chances of getting approved and to avoid wasting any time, check that you meet the lender’s requirements before you apply for a business loan.

6. Prepare your business plan, if needed

As mentioned earlier, some lenders may require a business plan during the application process. A business plan should describe how every corner of your business operates and ultimately where you plan to take it.

Other lenders, including Esme, may not require a business plan and instead ask for a short summary on how you intend to spend the loan.

To find out what a business plan should include and how to write one, visit our business planning blog post.

7. Get your documents ready

Every business loan lender will require documents in order to apply for a business loan. These often include proof that you own your business or how much your business earns. These vary between lenders, so it’s important to check before applying.

It’s recommended to get the required documents ready beforehand, to make the whole application process more efficient and avoid any back and forth for missing or incorrect information.

8. Time to apply

So, you trust the lender, you’re eligible and you have your documents ready. Now, you can begin completing the application form.

After you’ve finished completing the application form, make sure you look over it to ensure you have provided the correct information and that there are no spelling mistakes. It is your first encounter with the lender and you want it to be right.

When you’re confident that all the information is correct, hit send!

What happens after you apply?

Depending on your loan and lender, the turnover of your application may vary. Some lenders could take weeks to get back to you, while others could take a matter of hours. Here at Esme, we aim to look at your application and come back with a decision within 24 hours.

If you are accepted for the loan, your lender will most likely send you information to read through and sign. This is usually documents such as the lender’s terms and conditions or a contract that you will need to sign or accept before receiving the loan.

Transferring of funds will vary depending on your lender. At Esme funds could be in your account within an hour of you accepting the terms and conditions.

The agreed repayments will then begin after you have received your business loan, which gives you time to organise your cashflow and focus on investing in your business.

How could Esme Loans help?

At Esme, we offer business loans ranging from £10,000 to £250,000* over a 1 to 5 year repayment period. A business loan can offer you a quick injection of capital that can help your business expand in exciting directions without having to worry about major hits to your cash flow.

Think you’re ready to make the next move? Just fill out our 10 minute application form or try our business loan calculator to get an idea of how much your monthly repayments could be.

*From £25,500 for Sole Traders