Obtaining a loan and offering security
When securing a loan, there are certain requirements you may need to fulfil. Most lenders require you to:
- share the financial risk by providing capital up to the same amount as you want to borrow - demonstrating your commitment and providing a contingency for repayment if things go wrong
- provide security for borrowing requests - eg personal or business assets, such as your home or business premises
- provide personal guarantees if you run a limited company, and the business cannot offer adequate security
- keep them informed of your progress, particularly changes or problems
- have a comprehensive business plan and cashflow forecast for larger borrowing requests
- have a good credit record - including a good payment record with other creditors
For information on banks' credit rating and scoring, see prepare your business for bank financing.
Agreeing the terms of your loan
Aside from discussing basic issues, such as the due date of the loan and the interest rate, you also need to:
- establish what the lender's loan fees are
- agree the covenants
- check if you can make overpayments
- see if there is an early repayment charge
- find out if you can take 'repayment holidays'
- check to see that late payment charges are practicable
It is often a good idea to seek professional advice on the terms of the loan and security requirements. They can help you choose the type of loan and lender best suited for your business.
Standards of conduct for lenders
The Lending Standards Board (LSB) provides standards for business customers and sets the benchmark for good lending practice in the UK, outlining the way registered firms are expected to deal with their customers.