How To Successfully Secure A Business Loan

Getting a business loan doesn't need to be tricky

Updated: July 1, 2024
Matt Crabtree

Written By

Matt Crabtree

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Businesses need finance

Starting or growing your own business is the dream of many, but being an entrepreneur is far more difficult than people may first imagine.

There are so many challenges ahead of any would-be business owner, and right near the top of the list is securing finance.

You cannot do anything without a great business idea and a solid plan. But, you also cannot proceed with your idea without an investment of some sort. You need money to start and develop your business.

First steps – a viable business plan

The first thing you need to do is write a proper business plan.

You can download a template that you fill in, which may or may not be suitable for your business, or you can do a bit of research and write out your own business plan from scratch.

The reason for this is that nobody should know more about your business than you do. Even if your business has been running for a while you will probably need a business plan to access funding.

Why write your own business plan?

  • It is an exercise in researching, developing and testing your own business ideas.
  • It is crucial to work out the cost estimates, predicted profits and losses, cash flow and other financial information, which investors or lenders will need to examine.
  • An honest and well-written business plan should point you to any fundamental flaws or early challenges you will almost certainly experience.
  • If you have a hard copy of your business plan it can serve as a future guide or training manual for yourself and your team.
  • It will educate you in the future as to what you got right and where you need to improve if you want your business to grow.

Enter the banks

Assuming that you have a decent credit history and that your bank is lending to start-ups at that present moment, you may arrange a meeting with your bank for a business loan. Here they will ask to see your completed business plan along with the financial predictions for the next three years or so.

This is your chance to convince the bank of your suitability for a loan while explaining your vision to them.

Information a bank will need:

  • A summary of the business, the market you will be competing in and why you think the idea can work.
  • Why do you believe that you are the person who can lead this enterprise to future financial success, in the eyes of the bank that is all that matters. And it must be proven by means of the financial predictions described above.

Banks hate risks, so you need to have your financials worked out accurately and be able to explain your business really well.

Confidence is key. This is the first impression of your business that lenders will get to see, so make it a good one! How well you can explain it to a stranger is key to securing a bank business loan – so lots of enthusiasm and preparation is needed.

Who to approach

Banks are not the only people you can approach for business finance. Consider the following on your quest for start-up business funding:

  1. You really need to raise some form of capital by yourself, either by saving money from an existing job or taking on another part time job to squirrel away some start-up funds. You will need every amount of cash you can get your hands on in the early days, so try and start with at least some of your own money invested in your business. It shows other investors and lenders that you have self-belief.
  2. Your family may be willing to back you financially, which would be extremely useful in being able to prove to other backers that other people believe in your idea as well. It shows willingness and brings something to the table at a future meeting.
  3. Local and regional grants and loans are usually available to certain businesses or industries, it’s just a case of finding out who they are and what sort of businesses they invest in or lend to. As you would expect, loans must be paid back, but probably with a very favourable interest rate, whereas grants don’t have to be repaid at all.
  4. Social enterprises and organisations exist that invest in or loan to businesses meeting specific criteria. An example would be the Royal British Legion which offers business loans to ex-forces personnel.
  5. Traditional banks or financial institutions may possibly offer loans that you may secure if you already have some of the capital yourself. They will probably want surety or a guarantee of some sort.
  6. Crowdsourcing is where you approach several investors through an online platform where many willing investor members may choose to invest in or lend to your business. Examples of these are Kickstarter and Funding Circle.
  7. Finally, you have business angels, who are high net-worth individuals who are more willing and able to invest in higher-risk ventures than a bank ever would be. Dragons Den, but without the cameras. Unfortunately for most people, these individuals are not in the habit of giving away or losing money, so it will all come down to an exceptional business plan with an equally persuasive individual who knows and loves their business and is able to reach out to and convince a business angel likewise.

Meeting the decision-makers

If you have prepared a well thought out business plan then you should be confident of where you want to take your business.

This should fill you with confidence because you know it inside-out and are enthusiastic and knowledgeable enough to be able to explain it to anybody.

However, this needs to apply to the financial statements as well, which is more often than not the weakest area in many business plans. Even if you get professional help from an accountant or financial expert here, you need to be able to confidently recall and argue your corner with regards to financial predictions. When you are able to do this then lenders will take you seriously.

You also need to show that you will be able to run and manage the business properly and that the risk of backers losing their money is minimal. This can only be achieved by a person who knows exactly where they need to be taking their business.

Coming up with a viable business idea takes guts. Writing the business plan takes research and preparation. And working out the financial forecasts takes honesty and accuracy, with possibly some professional help.

Presenting your case takes confidence. But all of these things are skills that you can learn, and will enable you to secure the vital funding that you need to bring your business dream to fruition.

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