Bank finance

Before you look for a financial provider, you should ensure that your business is able to meet the requirements of potential lenders and secure a deal that will benefit your business.

One way to make sure your business is prepared is to ensure your business plan is up to date, and that you are well informed about your own finances. For example, you should be able to discuss:

• your audited accounts for the past two years
• evidence of your current performance
• a profit-and-loss forecast for next year
• business bank statements for the past six months
• profiles of each partner or director in your business

You will also need to be clear about the amount of money you require and what it will be used for.

For more information, see cashflow management.

It is also important that your business and personal credit ratings are up to date and as free from errors as possible. You can improve your credit rating by ensuring that you:

• pay your suppliers regularly
• capitalise the business by investing your own funds, in the form of loans fixed against assets the business owns - eg stock, premises, vehicles
• maintain a regular profit in the business, rather than taking too much out

For more information on preparing to apply for a loan, see tailor your business plan to secure funding.

Further requirements

When securing a loan, there are certain requirements you may need to fulfil. Most lenders require you to:

• share the financial risk by providing capital up to the same amount as you want to borrow - demonstrating your commitment and providing a contingency for repayment if things go wrong
• provide security for borrowing requests - eg personal or business assets, such as your home or business premises
• provide personal guarantees if you run a limited company, and the business cannot offer adequate security
• keep them informed of your progress, particularly changes or problems
• have a comprehensive business plan and cashflow forecast for larger borrowing requests
• have a good credit record - including a good payment record with other creditors

Agreeing the terms of your loan

Aside from discussing basic issues, such as the due date of the loan and the interest rate, you also need to:

• establish what the lender's loan fees are
• agree the covenants
• check if you can make overpayments
• see if there is an early repayment charge
• find out if you can take 'repayment holidays'
• check to see that late payment charges are practicable

It is often a good idea to seek professional advice on the terms of the loan and security requirements. They can help you choose the type of loan and lender best suited for your business.

Standards of conduct for lenders

The Lending Standards Board (LSB) provides standards for business customers and sets the benchmark for good lending practice in the UK, outlining the way registered firms are expected to deal with their customers.

Find out more about the LSB.