Guide

Bank finance

Where to look for a bank loan

Banks are the main source of small business loans, but many other organisations provide loans at competitive rates. Building societies offer business mortgages and personal loans. You can also consider finance from a non-bank lender. See business financing options - an overview.

Being ready and meeting lender requirements

Before you look for a financial provider, you should ensure that your business is able to meet the requirements of potential lenders and secure a deal that will benefit your business.

One way to make sure your business is prepared is to ensure your business plan is up to date, and that you are well informed about your own finances. For example, you should be able to discuss:

  • your audited accounts for the past two years
  • evidence of your current performance
  • a profit-and-loss forecast for next year
  • business bank statements for the past six months
  • profiles of each partner or director in your business

You will also need to be clear about the amount of money you require and what it will be used for.

For more information, see prepare your business for bank financing and cashflow management.

It is also important that your business and personal credit ratings are up to date and as free from errors as possible. You can improve your credit rating by ensuring that you:

  • pay your suppliers regularly
  • capitalise the business by investing your own funds, in the form of loans fixed against assets the business owns - eg stock, premises, vehicles
  • maintain a regular profit in the business, rather than taking too much out

For more information on preparing to apply for a loan, see tailor your business plan to secure funding.

Getting the best loan deal

You should take care to choose the right loan option that best suits your business needs.

After you have chosen the type of loan that best suits your business needs, you should also try to get the best deal available. To ensure this, you should:

  • Shop around - compare interest rates and negotiate to get the best deal, and ask for any special terms in writing. You can also use the British Bankers' Association (BBA) Business Account finder.
  • Use a finance broker - this can save you time and increase your chances by presenting your proposal efficiently to appropriate lenders. Find a financial broker with the National Association of Commercial Financial Brokers (NACFB).
  • Research the small print - assess all lending criteria, such as interest rates, loan terms and set-up fees, plus special deals for start-ups. Consider having an expert, such as a solicitor, review the loan documents.
  • Compare loans between different banks and be prepared to switch providers.