Your first business loan, step by step

Key points

• Start with the purpose: what the money is for and how the business will repay it.
• Run your own numbers before you talk to anyone, using your real costs and income.
• Get your documents together early. It saves time and stress later.
• Compare the total cost of each offer, not just the interest rate.
• Read every term before you sign, and ask questions until you understand it.

Step 1: Be clear about the purpose

A lender will want to know what the money is for. So should you. Write down the purpose in one or two sentences. For example: "to buy a second delivery van" or "to cover wages while we wait for customers to pay".

The purpose helps shape the type of finance that may fit. Buying a machine is different from smoothing out cash flow. Our business finance page explains the main types in plain words.

Step 2: Work out how much you need

Add up the real cost. Include delivery, setup, training and any extra stock or staff you will need. Then think about how much of your own money you can put in, if any.

Borrowing too little can leave a gap. Borrowing too much means paying interest on money you do not use. Aim for a number you can explain line by line.

Step 3: Check the repayments fit

Try a few amounts and terms in the repayment calculator. Then look at your cash flow. Will the business have enough each month to make the repayment, even in a slow month?

The cash flow planner can help you see the months when money is tight. It is better to find a problem on paper than in your bank account.

Ask yourself

• What happens if sales drop for a few months?
• What happens if the interest rate goes up (on a variable loan)?
• Is there a buffer for surprises, like a big repair or a late-paying customer?

Step 4: Get your documents ready

Most lenders ask for proof of who you are, how the business is going and how you plan to repay. That often means ID, business registration details, bank statements, financial statements and tax records. The exact list depends on the lender and the loan.

Our document checklist lets you tick off what you have. The guide Getting your documents ready has more tips.

Step 5: Understand how lenders look at it

Lenders usually look at a few things: whether the business can afford the repayments, its track record, any security offered, the purpose of the loan and the quality of the documents. Every lender weighs these in its own way.

Read How lenders look at an application for a simple overview.

Step 6: Compare offers properly

When you get quotes, put them side by side. Look at:

• the interest rate, and whether it is fixed or variable
• the term (how long you have to repay)
• upfront fees, ongoing fees and any fee for paying early
• whether there is a balloon payment at the end
• whether you need to offer security or a personal guarantee

The compare quotes tool adds this up for you, so you can see the total cost of each offer. Our guide Understanding loan fees explains the common fees.

Step 7: Read the terms before you sign

The loan contract is the final word, not the brochure. Read it slowly. Check that the numbers match the quote. Look for what happens if you miss a payment or want to pay the loan off early.

If anything is unclear, ask the lender to explain it in writing. Many people also ask their accountant or a lawyer to look over the contract. That is a normal, sensible step.

How a broker fits in

Pay In Time - Finance is a finance broker. We can help you understand your options, gather what lenders usually ask for and put an application forward. The lender makes the decision. See how it works for the steps.