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Top tips for getting a business loan and what to watch out for

7 May 2021|Business Growth, Fundraising, Latest Posts, Money

Top tips for getting a business loan and what to watch out for
Top tips for getting a business loan and what to watch out for

By Scott Donnelly, CEO, CapitalBoxThe process of getting a business loan has changed considerably over the last decade. Traditional banks, which were once the first point of call, have since shied away from the lending arena, leaving smaller players to support SMEs.

Since the 2008 recession, banks have been wary about lending to small businesses as they have always been viewed as riskier. Although things are gradually improving, it can still seem virtually impossible to get a loan to grow a small business. Today, alternative lenders provide funding options for businesses in need, particularly during the coronavirus pandemic where government loan schemes have struggled to deliver. 

Here, CapitalBox CEO, Scott Donnelly offers some top tips on what small businesses must bear in mind when getting a loan and what should be considered along the way.

1. Do your research and know your terminology

Consider all the options. It’s crucial for SME decision makers to have an open mind and to consider the full range of funding options and loan facilities that are available today. 

At a time where there are more options than ever to fund an SME’s business growth, it’s crucial that leaders are aware of the risks and advantages of each form of funding. This is why conducting research to understand the terminology used can be really helpful in choosing the right loan for you. It is easy to get blindsided by headline figures and industry jargon, but the small details are what really matters.

Knowing more about the various SME funding options available ensures that small business leaders can make the best decision about how to successfully grow their business.

2. Know how much you would like to loan and for what purpose

Organisation is key when applying for a small business loan. It is crucial to have all the details that you need for your application in one place before going ahead, this makes for a more efficient process when completing the form. For example, knowing what the money you’re borrowing will be used for is the most critical factor when taking out a loan. After all, borrowing money is a big financial step, and it is important you have a plan in action for it.

Now that you’ve determined why you need the money and that getting a loan is the right financial move, it’s time to think about how much you would like to loan and can realistically afford to pay back. 

3. Be mindful of your credit score and improving it

You now know what you can really afford to borrow and pay back, and have a business plan in action. So, what’s next? It’s time to figure out what loan and rate you quality for. This is where your credit score comes in.

Your credit refers to your history as a borrower. So, if you’ve successfully repaid loans before, lenders can assume that you will continue to do so. The more this has been done, and longer it has been done for, the better your credit score will be. Improving your credit score can be done by paying your invoices on time, being mindful of your personal credit history and checking for mistakes on your file – even having just a slightly wrong address can affect your score.

Your credit score and, more importantly, your credit history are integral to your financial future. Without good credit, you can wave goodbye to low rates, low payments and overall savings.

4. Decide what type of lender is best suited for your needs

Taking out a loan is no small thing. It is important to choose a lender who can support you with the right advice and terms throughout the time span of your loan. Whether this is your first loan or your twenty-first, there are a few points that should be at the front of your mind when you’re trying to locate a lender you can trust.

Firstly, how fast does your business need the loan? For example, CapitalBox can approve applications within one business day, whereas banks take longer to do so. Can you use collateral to guarantee your loan or not? Some lenders, like CapitalBox do not require collateral, only a personal guarantee.

Being aware of the documents requested by the lender and each lender eligibility criteria can also help to inform your decision.

The fast-moving nature of the small business loans market can make it overwhelming to apply for a business loan. Following these tips, doing your research and asking third-party experts for help can make the process less daunting. Using your research to properly balance and evaluate the pros and cons of each option will give you the best shot at a successful business loan that is right for you.

About the Author 

Scott Donnelly, a New Yorker who moved to Sweden 10 years ago, now lives in Berlin where he helped set up CapitalBox’s HQ. Scott works closely with thousands of SMEs in Europe. During these challenging times, he and his team at CapitalBox are continuously driving innovation in the funding processes, to make these as accessible and quick as possible for SMEs who are left behind by traditional funding options.


LinkedIn https://www.linkedin.com/company/capitalboxsme/