How to get a business loan

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According to the European Commission, the economy in the UK is forecast to grow by 2.4 per cent in 2015. With the cost of borrowing cheaper than it has been for many years and credit becoming widely available, demand for lending in Britain is also on the rise. This is positive news for those wanting to start a childcare business or expand the size of their setting this year.

Before you jump in and apply for as many different loans as you can think of, remember that every lender will have different eligibility criteria and specific things they’re looking for. With this in mind, you’ll increase the chances of being accepted for a loan if you spend time doing your homework before submitting your application.

Here’s our top 6 tips to help you get a business loan:

1. Put together you loan proposal

Before you approach a lender, put together a loan proposal. This document should provide some background about you and your childcare business. It should also cover these important questions:

  • How much do you need to borrow?
  • For how long do you want to borrow it?
  • What will you spend the money on?
  • How do you plan to pay it back?

Use the loan proposal to demonstrate you’ve carried out thorough research into local demand for childcare in the area, rival competitors and how you’ll fill a gap in the market with your service.

2. Prepare your paperwork

Get your “financial house” in order. Lenders are likely to want to see your statutory accounts from the past 3 years, but ask the lender specifically what documents they want to see – as this can vary. The more prepared you are with your paperwork beforehand; the more likely you are to instil confidence in the lender to approve your loan request.

3. Do you have security?

Lenders will normally require some form of security from you, such as a building to secure the loan against. If this isn’t possible, you may be eligible for the government’s Enterprise Finance Guarantee (EFG). This is a system where the government provides 75% of the security and is worth looking in to.

4. Check your credit rating

If you already have a childcare business, check your company’s credit rating before you apply for a business loan. Most lenders will want to assure themselves that the people they’re lending to have a good track record of managing their finances.

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Preparation is the key to getting your loan approved

5. Invest in a smart shirt

Incredibly, it takes just 7 seconds for people to form their first opinion of you. Although comfy clothing is the norm when you work in childcare, you can create a good impression with the lender in your first meeting if you dress smartly. Having polished shoes and a well groomed appearance will help to show the lender that you’re serious about getting your loan approved.

6. Prepare to talk scenarios

Whilst it’s great to talk positively about what the loan will be used for, be prepared to talk your lender through your plans for dealing with possible threats to the success of your business. It may be helpful to jot down all the different scenarios you can think of: low occupancy, competition from other businesses etc and come up with a solution to overcome each challenge.

Sources of funding

Many people will go directly to their bank manager for a business loan, as they have already built up a familiar relationship with them over many years. However, it might be worth your while to explore other options for funding your start up or expanding your nursery:

Peer to peer lending

An alternative to a traditional bank loan is Funding Circle. This is a government backed lender that has lent over £487 million pounds to British business since it was created. Of this, a large proportion of funding has been secured by small businesses and start ups. Funding Circle provides loans from £5,000 – £1mil and is reputed to have a quick turnaround time if your application is approved. However, interest rates can be higher than if you used a bank.

Business grants

If you’re looking to start up a nursery from scratch and do not currently run a childcare business, you may be eligible for a £500 grant. The government has announced that it will fund a £2 mil extension of its Childcare Business Grant Scheme to cover 2015-16. The scheme was set up to help with the costs of buying equipment, training and adapting premises.

Whether you choose to apply for a loan at the bank or through Funding Circle, you’ll need to be prepared to provide a personal guarantee. It basically means that if the business fails – you’ll honour the debt. This can have implications on your personal and family life, so think carefully before you apply.


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One thought on “How to get a business loan

  • April 22, 2015 at 1:36 pm
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    Great post- Not sure if you will agree but I think one of the main reasons lending applications get rejected is because the applicant has been too vague. some even think it’s a good idea to borrow a few thousand pounds extra just to cover themselves but lenders won’t see it that way. If they are going to give you money it is quite simple- you need to be able to justify why you need every penny and what it will be spent on and how you plan on paying it back- that’s pretty much the crux of it

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