How to get a Loan to Start a Business in 2019

Last Updated: June 1, 2019

Banks are eager to support startups and a profitable SME sector, but are under ever increasing pressure to ensure that their money is not lost. Here are 3 tips to help startups and SMEs through the rigorous approval processes, that will actually ensure the fundamentals of their business are strong from the start.

how to get a loan to start a business
Image Source: Shweta Jhajharia

Capital is essential for starting most businesses, by capital we mean business capital – money available to start your company or business. Today one of the best ways to raise capital for your new business is still through traditional lenders such as the banks.

When considering the question of how to get a loan to start a business, it’s interesting that in the UK and elsewhere, there has actually been an increase in borrowing from banks by SMEs and startups. Although banks remain a go-to source of funding for most businesses, new businesses should note that the competition for acquiring a loan is getting tougher.

The startup phase is tough, and it’s not any more comfortable for small businesses in growth. Small business lending is a huge issue during the growth phase, just as significant as the question of financing a startup small business was in the earliest days of the firm. For anyone pondering over small business lending agonising how to get a small business loan, or a loan to start a new business, the interesting point is that banks actually want to help startups and small businesses. I know from my experiences as a startup coach that they want to see SMEs grow and flourish, but in the past 10 years they’ve come under increased pressure to ensure that the money they lend is not lost. For that reason, thorough approval processes are the name of the game, and that’s where the difficulties start.

The fact is, many small and startup business owners are simply not presenting themselves in the right way. And that is why the loans are going elsewhere than for small business lending, or financing a startup small business. For instance, the Bank of England has anticipated and increase in lending to all but small businesses.

Business coaches do assist with this process, and guide entrepreneurs how to get a loan to start a new business, or for an SME, but of course, not every small business or startup will have access to a mentor or a business coach.


3 points for planning how to get a loan to start a business

So what is wrong with the way small businesses and startups are applying for loans? And most importantly, what can small business owners and startup entrepreneurs to help ensure a business line of credit. Here are three key boxes to tick when planning how to get a loan to start a business.


1. Understand the Key Factors

The main problem that SMEs seem to have stems from their lack of understanding of the key factors in loan approval and financing a startup small business. To be successful, businesses must:

  • Prove the business has Interest Coverage
  • Show the business’s Borrowing Capacity
  • Clearly display the business’s Cash Flow
  • Have a robust Business Plan

As mentioned above, the banks want to support the local business community, but when presented with poor or missing historical financial information and unclear base assumptions toward future projections, it becomes impossible for them to approve loans.

The banks want to expand their loan portfolios in the SME sector. That’s the reality. A stellar application is more than likely to secure loan approval. Business coaches act as strategy consultants in helping actually build a business plan, which will help with this aspect of the application.


2. Focus on Robust Business Planning

The most crucial factor in obtaining a business line of credit is having a plan that proves the business is viable and easy for the bank to say ‘yes’ to. A good business plan not only presents the company in a really favourable light but also helps them to build a more financially stable business. Undertaking rigorous, focused financial planning and organising is proof that the business can cover interest payments, and has an ever-improving borrowing capacity while growing cash flow and profitability. It’s all about checking your financial assumptions and making sure that they make sense to the bank.


3. Detail the Crucial Elements in your Business Plan

To secure a business line of credit from the banks, it is vital to create a business plan to incorporate a number of key elements, which should be defined explicitly, including:

  • An understanding of the financial drivers for your particular business
  • Projected Profit & Loss
  • Projected Balance Sheet
  • Projected Annual Cash Flow
  • Marginal Cash Flow Projections for a 5-year period

All of these should, of course, be supported with detailed explanations on how you are going to achieve these projections. It is beneficial for you to have a business mentor or business coach to review this sort of information to make sure that there are no loopholes or blind spots that you’ve missed out.

Essentially, banks want to know your finances are in order, and that your business has real viability. So whether you want to know how to get a loan to start a business, or an SME planning how to get a small business loan, look on it as an opportunity to create a professional and sophisticated business plan and get a re-education about what makes a business more financially viable so that you can grow your business with intelligence and profitability.


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