What documents do you need when applying for a business loan? – Small Business UK
Applying for a loan may seem daunting once you’ve decided to borrow finance. That’s why it’s always important to have the right business documents prepared before you do so.
Documentation varies depending on what type of lender you’re looking to borrow from. With a business loan from a bank, you’re likely to be required to provide more documents to limit risks, such as a business plan or insurance. Other lenders might require less.
Brokers who act as an intermediary between the applicant and the lender offer an online application that further reduces the amount of documentation needed.
Go to the section you’re most interested in or read on for the full guide.
- Business Bank Statements
- Financial accounts
- VAT returns
- Management accounts
- Details of company directors and financiers
- Proof of ID and address
- Speak to your broker
- Other things to consider
Best UK small business accounting software – review guide – It’s never been easier or more affordable to manage your tax and accounting using small business accounting software – find the best accounting package for your needs here
What is a business loan?
A business loan is a form of borrowing specifically intended for business purposes.
They can be used for start-ups or to expand and grow a business. Like individual loans, they require repayment within a set amount of time and with added interest (determined by the lender).
There are borrowing limits depending on your business’s revenue and trustworthiness according to the lender, as well as type of loan you are looking for.
What are the different types of business loan?
There are two types of business loans: secured and unsecured.
Secured loans, often provided by banks, is a type of credit backed by property or assets that you own. They can often be referred to as asset-based lending.
Examples of secured loans:
- Invoice financing
- Bridging loans
- VAT loans
- Asset refinancing
Unsecured loans don’t require the borrower to put up any assets as part of the loan. Instead, they often require a personal guarantee and stricter eligibility. They usually come with higher interest rates but can be a useful choice for small businesses looking to get a relatively small sum loaned to them.
Examples of unsecured loans:
- Start-up loan
- Mezzanine finance
- Asset finance
- Business overdraft
- Merchant cash advance
Who is eligible for a business loan?
Lenders have different eligibility criteria depending on the type of loan you are looking for, but generally speaking you will need to be a UK resident and at least 18 years old.
In addition to this, lenders will check your:
- Credit score
- Business plan
- Collateral
How much can you borrow?
This depends on the type of loan you are looking for as well as your lender. Loans can start from as little as £500.
Documents checklist
Business bank statements
Business bank statements are an essential document used to verify the income and the outgoings of your company. The statements usually consist of a summary of your transactions which helps determine your spending and income and are typically produced every month.
Financial accounts
Financial accounts are necessary for the lender to gain a clear insight into the company for the full financial year. They allow lenders to see a greater picture of the company, rather than working solely from bank statements alone.
For example, six months’ worth of bank statements might be taken from a period where your business had a quiet trading period. Financial accounts allow the lender to gain a longer-term insight, which shows a truer representation of your business. Turnover, profitability (in the form of profit and loss), and a balance sheet are all contained in financial accounts, which will show your assets, liabilities and equity attached to your business.
Furthermore, financial accounts will also include your company registration number (CRN) and the registered address of your business, should you need to submit these.
Financial accounts for a private company are usually first filed 21 months after the business has been registered with Companies House.
VAT returns
VAT returns, which are usually updated every three months, can be used if your financial accounts are out of date. These returns will show the lender a picture during that year and can be used as an alternative to management accounts. Some businesses though may be VAT exempt.
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Management accounts
Management accounts are used to display an up-to-date impression of how the business is operating in account form. They’re useful for a lender to determine what will be on the next set of accounts. Management accounts normally include the profit and loss of the business and a balance sheet, but there are usually no set rules.
Accountancy software, such as Sage or Xero, can help you create and produce the financial reports you need when applying for a business loan.
Details of company directors and financiers
The majority of lenders will require an application which is filled out by yourself or a broker. This is where the company director/s, shareholders and other financiers’ information will be detailed.
Proof of ID and address
Proof of ID can be provided in the form of a driving licence or a passport. Proof of address can be provided in the form of a utility bill or personal bank account statement.
Proof of ID and address are used to help guard against the possibility of fraudulent activity and money laundering. Essentially it is to authenticate that you are the person you say you are, as well passing any other criteria such as being over 18.
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Speak to your broker
If you are considering a business loan and are still unclear on what documents you need, speak to your broker. They are usually more than happy to help and further explain what documents are needed, as well as answering any other queries you might raise.
Other things to consider
Once you’ve collected the relevant documents mentioned above, there’s a few extra things you might want to consider as a “nice to have”. These aren’t legally required, but can be beneficial when you’re applying and helpful to your business once you start trading fully.
- Double check the market to see if there’s a better deal you could get. If you’re using a broker, they’ll be able to help you with this, and while you might be better off sticking to your original application, it can’t hurt to look.
- Financial forecast – this is an estimate of future revenues and expenses which estimates how much cash is planned to go in and out during a specific period. Part of this will already be included in your application, but it’s good to get a broader view of your business.
- You may need to provide your business plan to show that your business has the potential to succeed. This will need include an executive summary, business description, market analysis, product/service breakdown, operational plan, marketing strategy, management structure and financial projections. It isn’t a legal requirement, but it’s likely the lender will want to see this to inform their decision. For more information about writing a great business plan, check out our article.
Adam Parker is commercial director of credit broker SME Loans.
More on business loans
Best small business loans in the UK – We explore whether a loan is the right finance option for you along with some of the best small business loans in the UK market
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Looking for finance? SmallBusiness.co.uk is working in partnership with trusted lenders to find the best business funding deals. Find out more here.
