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Understanding Business Loans
Just like individuals, businesses can take out loans. A commercial loan can help you start a new venture, invest in new equipment, expand into new markets, or simply support your cash flow during seasonal fluctuations.
There are many types of business loan, depending on your needs. These typically involve regular repayments with interest over an agreed period - but choosing the right loan, understanding the process, and staying on top of repayment terms is essential.
What to Know Before You Apply
Work Out What You Need
Before applying, determine exactly how much you need to borrow. Are you investing in assets? Launching a service? Funding cash flow?
Use online calculators like those from the British Business Bank to forecast your monthly repayments. This helps assess whether a loan is viable without placing stress on your business.
Assess Your Repayment Ability
The longer the loan term, the lower your monthly payments - but the total interest will be higher.
Think carefully about what your business can afford to repay over time.
Choose the Right Loan Type
Small business loan options range from short-term finance with higher monthly payments to long-term borrowing with extended repayment schedules. Some loans are specifically designed for new businesses, others for those with an established track record.
Understand Your Eligibility
Lenders typically assess:
Your business credit score (if applicable)
Lending and repayment history
Length of time trading
Annual revenue
Any assets you can offer as security
If your business is new and lacks financial history, approval may be more difficult - but there are still options available.
The Application Process
To apply, you’ll usually need to provide:
Your name and your business name
Details of how you plan to use the loan
Loan amount requested
Your business tax ID number
Address history (often for several years)
Date trading started
Business turnover – current and projected
Net profit
Any existing loans, credit cards, overdrafts (personal and business)
Business current account details
Start-Up? Consider a Government-Backed Loan
If your business is brand new, a Start-Up Loan could be ideal. These are unsecured personal loans ranging from £500 to £25,000.
What makes them different?
You don’t need business credit history
You’ll receive support to write your business plan
If successful, you’ll also benefit from up to one year of free business mentoring
Repaying a Business Loan
Always meet the repayment terms outlined in your agreement. Missing payments can:
Damage your business credit rating
Incur penalty charges
Trigger early repayment clauses
Increase interest rates
In some cases, your full loan may become repayable if you break the terms.
Why Loan Applications Get Refused
Lenders may reject your application for several reasons:
Poor or insufficient credit history
Bankruptcy or outstanding liabilities
Unverifiable income (e.g. overseas work history)
Low income relative to the requested loan
Lack of assets for collateral
Operating in a high-risk industry
If your application is refused, you’re entitled to ask for the reason within 30–60 days. Avoid making multiple new applications right away - this can negatively affect your credit score.
Profectus Can Help
At Profectus Accounting, we work closely with small and growing businesses to help them secure the funding they need to thrive.
We’ll help you understand your loan options, prepare supporting financial records, and plan repayments realistically.
Please get in touch if you’d like guidance tailored to your business loan application.
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