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How to apply for a small business loan: an SME guide

Join the Esme team as we go through the business loan application process step by step, as well as share tips on how to prepare your business before applying.
How to apply for a small business loan: an SME guide

Updated on 15th June 2020

Our Small Business Loan Guide answers the main questions you’re likely to have when looking to learn more about how a business loan could impact your small business. If you think that a business loan may be the right option for you - or if you know that you absolutely want one, our guide below will explain how to get a business loan in a few simple steps.

1. When should you take out a business loan?


Business is often about thinking ahead. You may require a loan if you are looking to buy assets in order to help increase your business’ revenue or add long-term value to it. A loan may allow you to expand your business without impacting your normal levels of working capital.

Being able to show lenders that your business has a track record of making profit and a healthy cash flow may improve your chances of getting your loan request approved. So, it could be worth applying for a loan in advance - during periods where your business is already looking strong.

2. Know what you want


Before finding a business loan or lender it may benefit you to think about exactly how you want to spend the loan. This will shorten the application process, as many lenders 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 for your business’ cash flow, 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 a lender’s business loan calculator to find the repayment period that allows you to stick to your monthly budget.

3. Look at your business’ credit history


Every business has a credit score, which works similarly to a personal credit score. Most lenders will check your business’ credit when you apply for a loan with them. Therefore, to get a step ahead of the game, you could check your business’ score before applying for a loan to get a full picture of your credit situation, and make changes to improve it and increase your chances of getting that application approved. If your business score is low, some of the actual steps you could look to take to improve it include paying bills in advance or keeping on top of your personal credit score. We have put a guide together which could help you find out more on how to improve your business’ credit history.

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

4. 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. You can get loans from banks, non-profit micro lenders and online lenders such as ourselves. Understanding how you intend to use the loan, as well as your repayment budget and desired loan amount, will help narrow down your options. You can also compare your loan options with different lenders and choose the one that best suits your needs.

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 in our ‘Are online business loans safe?’ blog post.

5. How quickly do you need the loan?


The length of the application process for a business loan can vary greatly based on the lenders and the type of loan you’re applying for. 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 typically offer fairly quick online application forms.

If your loan is time sensitive, it’s worth checking how long it will take you to apply before getting started on an application.

6. What are the rates and fees?


Interest rates and fees differ depending on:

  • The type of loan that you’re applying for.
  • The lender’s terms and conditions – often influenced by whether the loan is secured or unsecured.

Business performance, credit history and industry sector are some of the factors that may be considered by lenders when deciding what fees and rates they’ll charge.

All charges and repayment conditions should be made clear before signing any contracts. At Esme, we offer a fixed repayment periods that don’t fluctuate- so it’s worth checking that the loan you’re looking into meets this criterion if it’s important to your business plan. For more information on rates, check out our business loan rates page.

7. 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. Generally, lenders require for you to have a good credit score, be making enough money and can easily afford to make repayments.

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

8. Prepare your business plan, if needed


As mentioned earlier, some lenders may require that you supply them with 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 page.

9. Get your financial documents ready


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

Some of the documents that you may submit are business and personal tax returns, business financial statements, business bank statements and other legal documents such as commercial lease.

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

10. 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’s your first encounter with the lender and you want to make the right impression.

When you’re confident that you’ve provided all the correct information, you can 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 cash flow and focus on investing in your business.

Applying for an unsecured business loan with Esme Loans


If you’ve decided that you would like to apply for a loan with Esme, please take a moment to read our eligibility criteria below before heading over to our site.

Our eligibility criteria


Our business loans range from £10,000 to £250,000* and can be repaid over a 1 to 5 year time period- meaning you can choose a loan repayment plan that works for your business and its cash flow. Or, if you’re a sole trader- these loans range from £25,500 to £250,000.

Before you apply for a loan with us, it’s important to ensure you meet the eligibility requirements below to ensure that you’re able to apply. You must be:

  • Over 18 years, a home owner and a UK resident.
  • A sole trader or Director of a UK Limited company.
  • Registered with Companies House and have been actively trading for at least 3 years.
  • Turning over more than £50,000 per annum and have a track record of making profit.

How could Esme 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