Applying for a commercial loan in the UK is a simple process; however, it requires thorough due diligence on the part of the business that is seeking one. First, it will be necessary to determine your funding needs, and then research a suitable lender. In most cases, the lender will request a number of necessary documents or data if they are a fintech, and will typically include things like financial statements and a business plan. Upon completing your chosen lender’s application process, forms will typically be requested, and you will await an approval.

We advise that you speak to your own financial advisors through each step of this process, and ensure you are happy with the professional opinion presented before going forward with any financial commitments, as once your request is approved and you sign to receive your funds, you will be bound to your lender’s agreements and terms. To get a more detailed idea of this process, below we’ll illustrate the steps necessary for business owners who are looking to apply for a commercial loan.

Determining Your Required Funds

• Examine your needs: Business owners can start off by identifying exactly what the purpose of the loan is for, although in many cases, getting a loan is more reactionary than reactionary. From businesses we work with, commercial loans are typically sought after for things like working capital or equipment purchases, and in many cases expansion, too. Once the purpose is determined, it is worth considering whether you will need a lump sum amount, which would be a term loan, or access to funds on a more flexible basis, otherwise known as a line of credit.
• Calculate the costs: This is again why it is worth talking through any potential loan with a financial adviser, whereby you can confidently estimate any expenses such as interest rates or fees associated with the loan, and also fully flesh out what the repayment terms will be to confirm that you can manage the loan without putting your business in jeopardy. While loans are a very powerful tool for growth and expansion, without a thorough plan they can be the cause of a lot of financial stress.

Researching Suitable Lenders

Since 2017, open banking, combined with open accounting and the rise of fintechs has shifted how loans can be offered and how the application for a facility works, and has paved the way for more alternative lending opportunities compared to the established banking tradition of yesteryear. While banks are still a top contender, they might not always have the terms you are seeking, and with the security of modern fintech banking, aren’t the only establishments or types of lenders that can offer good financial services. Let’s take a look:

• High Street Banks: The most well known option is probably going to be a go to for most seeking a loan, and of course banks currently offer stability and competitive rates to go with it, however for many more niche needs for a loan, you will often find that banks are less inclined to commit to a business. There requirements are also very stringent, which can be punishing for a company that has had some financial misfortune and taken a knock on its credit, for example, but is otherwise performing well.
• Alternative Lenders: For lenders like us at Nucleus Commercial Finance, we can have the freedom to offer prospective partners more flexible terms, and certainly through the integration of open banking with our application system, have much faster processing times. We also understand that each business has its own unique history and leaders, and will not immediately turn you down based on credit history alone.
• Peer-to-Peer (P2P) Lenders: P2P is favourable if businesses are looking to borrow from individual investors, and with each loan, interest rates and term conditions will be determined by said investors, who should take all of the regular factors into account, that being credit history, business plans, any necessary collateral, and any additional components that they deem necessary.

When you have established which is the most suitable lender for your business’s needs, you should do further due diligence by closely comparing their products. There are many online comparison tools available that can help, and you should again consult your financial advisor to find the best product for you with the best terms. Once you have identified a lender with the kind of loan you need, you can follow up by inquiring about their specific criteria surrounding the facility, and you should make sure you meet all of these before making an application.

Gathering the Necessary Documents

• Business Plan: Commercial loan lenders will appreciate it if you have a business plan that demonstrates knowledge of your sector, as well as a description of your business’s operations, intended use of the loan, and a well thought out exit strategy. With that said, depending on your financial standing and history, lenders might deem a plan less necessary.
• Financial Statements: You should expect a lender to request records of your profit and loss statement (P&L) to show your revenue, expenses, and profits over specific periods. A balance sheet will also be required to list your assets and liabilities, as well as equity across the period. With these, a cash flow statement will also be used to give the lender a complete picture of your business’s liquidity.
• Any Supporting Documents: To demonstrate your business’s financial stability, tax returns and bank statements, typically the prior three months, will be requested by your desired lender, and depending on the loan type, legal documentation such as business licences or ownership agreements may be required.

Completing the Application

• Ensure accurate information: Always fill out your forms – to the best of your knowledge – with accurate and honest information regarding any requested information, this will be anything about you, your business, or financials.
• Digital vs paper applications: Many lenders now offer online applications that will speed up the application process, for example at Nucleus Commercial Finance we offer business’s the ability to apply through the integration of open banking, where by financial records can be checked in an instant, and a decision about the enterprise’s financial stability can be made much faster than the requirements of physical forms.

Submitting your Papers

• Organise your documents: Take your time and make sure all of the documents you need are organised and easily accessible, and not just for physical copies, as digital files may each need sending too. A checklist can help ensure you have everything you need, and lenders will appreciate your organisation.
• Lender-specific requirements: In most cases, different lenders will have specific instructions that prospective borrowers should follow with regards to how and where you can submit your documents. In a situation where you are struggling, don’t hesitate to contact your lenders customer services.

Awaiting Approval

• Lender’s review processes: Your desired lender, through whichever process they use, will review your application and requested documents to perform a financial analysis, and may well include things like a credit check or in person interview depending on your situation and needs.
• Timelines: Once again, depending on process and circumstances, approval times can vary from lender to lender, with traditional banks often taking weeks to sign off on approval, whereas alternative lenders like us at Nucleus can make a decision for you in minutes.

Reviewing your Loan Terms

To ensure you fully understand the agreement, we always advise that business owners speak to their financial advisors first. Thoroughly review any offered loan terms that your lender presents, and be sure to carefully consider the interest rates, repayment schedule and fees, as well as any early repayment penalties that you might not be aware of. Ensure they are realistic to your original needs and expectations before going ahead.

Signing the Agreement and Making Repayments

If you are completely satisfied with the loan terms, and your financial advisor is happy for you to go ahead, you can sign for your facility either electronically or in person, and once this is done, be sure to keep a copy of any signed documents for your own records. With everything complete, your first loan instalment should be received in due time, and your repayment arrangements can commence.

As we can see, there are several steps involved in applying for a commercial loan in the UK, with each being just as important as the last in ensuring your chances of approval from both traditional and modern alternative lenders. Taking your time with each step is important, and the more thorough you are with your due diligence, the greater your chances of success will be, and from there you can access the funds you need to help support and achieve growth for your brand.

For SMEs in the UK, applying for a commercial loan might be considered if and when funds are needed for growth, which could include anything from equipment purchasing or cash flow management, to seizing expansion opportunities that require a lump sum to secure.

In some unforeseen circumstances, businesses may also be forced to apply for a loan to cover unexpected costs or damages, although we’d like to hope this isn’t the reason you are searching for commercial loans today! There are many reasons why entrepreneurs come to us at Nucleus to discuss loan options, and for those curious, we’ll take a more detailed look at the ‘why’s’ and ‘when’s’ below.

Common Scenarios for Commercial Loan Applications

Growth and Expansion

• New Locations: Some of our favourite moments are when we hear from SMEs who are doing so well that they have decided it is a good time to open up an additional location, and ofcourse this is a perfect case for a commercial loan, providing the necessary capital to cover potential leasing or purchasing costs.
• Market expansion: Similarly to locational expansion, expanding into new markets or launching new products is always an exciting time for growing SMEs, however such moves typically require significant investments for things like marketing or product development and distribution. While expansions might be affordable without external funding, they could cause unnecessary financial strains that affect current operations, and if a business owner is certain of success, a commercial loan could be the perfect solution to keep operations running smoothly and achieving further growth.

Purchasing Equipment

• Upgrades and operational necessities: Depending on your industry and sector, you’ll find that most equipment has a certain lifespan, so investments in the latest tech or machinery are not uncommon and are actually to be expected. If you find your own equipment could do with an upgrade to enhance efficiency and productivity, it could be a good time to seek a commercial loan to cover the short-term costs.

Managing Cash Flow

For some business structures cash flow management isn’t so straightforward, and by default, some will opt to take out loans that cover gaps in their sales which is a standard practice, however going back to the mention of unexpected problems, this could be where making an active choice to seek help is unavoidable.

• Seasonal fluctuations: Many businesses, especially ones that specialise in things like seasonal retail, or tourism and travel, will experience variations in their revenue and more often than not will look to rely on a well planned loan to cover their costs during low cash flow periods, and if done correctly, it means they can maintain smooth operations during those downtimes.
• Unexpected Expenses: Business owners can prepare all the contingency plans they like, covering every thought of outcome to recover, however there is always something that goes unplanned, whether it involves sudden raw material costs increases or repairs out of the blue, and in these cases, commercial loans can make for the ideal financial solution.

Timing Considerations for a Commercial Loan

In the unfortunate case of unforeseen expense requirements, the timing for a commercial loan will be a reactive event whereby the business owner has no choice but to secure a loan to avoid further problems, however, when considering a strategical loan application, there are a few things that business owners can consider, especially when there is a chance of capitalisation:

Early stage businesses

• Startup Phase: It’s not unusual for new businesses to struggle a little when attempting to secure commercial loans, and that is typically down to them lacking a financial history, especially with traditional banks. Fortunately in the current year there are many alternative lenders on the market who may be able to help entrepreneurs get their feet off the ground, and are worth researching.
• Credit Building: By ensuring you do all the right things to build up and maintain your credit rating from the moment your business is registered, you’ll find obtaining a commercial loan, or any facility type, much easier when the time comes for growth, so make sure you keep paying off any smaller loans or credit lines that will help.

Established businesses

• Stable Revenue: Businesses with consistent and predictable revenue streams are always going to be more likely to qualify for a commercial loan, and it’s simply due to the assurance they can guarantee to lenders that they’ll be able to handle their loan repayments.
• Expansion Readiness: Reaching a point of expansion is an exciting time for any business owner, and commercial loans often end up being the perfect tool for achieving this, as it lets them avoid depleting any of their operational funds, keeping them stable throughout the transition.

Changing Economic Conditions

• Favourable Interest Rates: Securing a loan during times of low interest isn’t always possible, and it certainly isn’t feasible to try and plan when the rates will dip, however keeping an eye on economic trends, as well as staying up to date with bank and lender offers, securing a lower interest rate loan will save a lot of money in the long term.
• Economic Stability: If you’re considering a loan during a period of economic stability, lenders will typically be more likely to approve loan applications because there are fewer chances of unexpected economic strain occurring, and less businesses falling into liquidation, however things like having a good credit rating and history, as well as a solid business plan will still apply.

For SMEs in the UK looking to secure a commercial loan, knowing when to apply is important, and by understanding talking to your financial advisers to get a better idea of timing and preparation, you can help ensure that when do you secure a loan, it will be on the best terms possible, helping you to achieve that sustainable growth that every business is after.

The top providers of commercial loans in the UK consist primarily of high-street banks like Nationwide and HSBC, alternative lenders like Nucleus Commercial Finance, and peer-to-peer lending platforms. Each provider will vary in interest rates and repayment terms and may be more or less suitable for businesses across different sectors and industries.

Between speed of funding, and strictness in requirements to securing funds, each lender has its own advantages and disadvantages, and below we’ll explore these primary differences so entrepreneurs can get a better idea should they currently be considering a commercial loan.

High Street Banks

Traditional banks found on the streets are long standing financial institutions in the UK and they each provide a range of commercial loan options. These typically include fixed rate loans, flexible business loans, secured and unsecured loans, innovation finance and asset finance. While these banks are recognised for their trustworthiness and wide array of services, they typically necessitate thorough documentation from businesses, along with a solid credit background and rigorous screening.

We suggest that business owners speak to their financial advisors if they are seeking a loan, or approach the banks themselves to inquire, and while terms, offers, and rates are consistently changing, we can still suggest a few big names that are trusted lenders:

• Barclays
• Nationwide
• HSBC
• Lloyds Banking Group
• Natwest

Alternative Lenders

Alternative lenders are here to offer business owners more flexible and fast funding solutions compared to what you will get from traditional banks, and we will also take business owners on a case by case basis, regardless of financial standing, to understand your full story. At Nucleus, we have a range of loan offers that may be available to business owners who don’t meet the stringent requirements of high street banks, and thanks to our integration with Open Banking, you could see if you qualify for one of our facilities in a matter of minutes. If you are considering a loan, take a minute to get in touch, and we’ll see where we can help.

Peer-to-Peer Platforms (P2P)

Business owners who are seeking a commercial loan can connect directly with investors through peer-to-peer lending platforms, which will typically offer convenient and adaptable loan choices, more so than conventional banks, though rates and application requirements will be subject to the investor. Some big names in P2P in the UK are Funding Circle and LendingCrowd.

How Lenders Differ

• Interest Rates: Traditional banks will often have more competitive interest rates than their competitors simply due to their lower risk tolerance, while alternative lenders and P2P platforms may range higher, however have the benefit of offering much more flexible and faster accessed funds.
• Loan Terms: With loan terms you will find high street banks generally offering longer repayment terms on their commercial loans, with some ranging up to 30 years. In the case of alternative lenders, business owners can expect shorter-term loans but again benefit from the faster approval processes which are especially useful in cases of emergency.
• Eligibility Criteria: You will find that traditional banks require extensive financial documentation along with a strong credit history, and little interest in a case by case situation, whereas alternative lenders like us at Nucleus are more flexible, and will consider you even if you have a less established credit history.

In all, different lenders will each have their advantages and disadvantages, and can cater to different business needs, with traditional banks probably being more ideal for established businesses seeking a long term facility, whereas alternative lenders, while still suitable for established businesses, can also cater to newer brands and SMEs. To explore comparisons and specific offerings from different lenders, we recommended to visit their websites directly for more information and to learn their terms and conditions. We also always advise that you speak to your financial advisor before making any decision regarding a loan.

Commercial loan providers in the UK will assess a business’s finance application by first evaluating its credit rating and history, any relevant financial statements, typically a business plan, and its cash flow projections to get a holistic idea of its financial stability.

If it’s relevant, a business’s available collateral will also be reviewed, and this is all to determine your capacity to repay the loan, and evaluate any and all risks associated with the lending. For entrepreneurs looking to get a better idea of each of these metrics, below we’ll break them down and explain.

The Key Factors of a Loan Application Assessment

Credit History

• Business Credit Score: All lenders, traditional or alternate, will examine a business’s credit score to check on your history of managing credit and debt. Business credit rating ranged between 0 – 100, with 40 – 80 being regarded as medium risk, and above 80 classed as low risk. So from the moment your business is established, you should maintain your rating at 80 and above by being prompt with credit payments, especially if getting a commercial loan is part of your expansion planning.
• Personal Credit Score: For smaller businesses or sole proprietorship, it is not unusual for lenders to consider the owner’s personal credit score which ranges from 0-999, and typically a score over 700 is deemed low risk, to get a reflection of how their business would handle its own debts.

Financial Statements

• Profit and Loss Statement (P&L): This is a record of your business’s revenue, expenses, and its profitability over specific periods of time, and is used by lenders to get a picture of your financial health and stability.
• Balance Sheet: Your balance sheet will give lenders a snapshot of your business’s financial condition within a particular time and it details things like your asset and equity. This is then used to get an idea of the enterprise’s net worth as well as its financial structure.
• Cash Flow Statement: Cash flow statements track the inflows and outflows of your business’s cash, and are used to demonstrate how well you manage that cash and how effectively you meet your financial obligations, so for these statements, a positive flow is crucial for new loan approvals.

Business Plan

Business plans can vary from extremely thorough and in depth, to outlining just the primary pointers that will explain your business, its standing, and your finances. Demonstrating your loan intentions and exit strategies can also help lenders understand your plans, and may help build trust, increasing your chances of a successful application. Let’s cover the primary points of a business plan that would typically be expected as the minimum:

• Executive Summary: You will want to provide a concise and complete overview of your business and its goals, and this is a good place to illustrate how the commercial loan will help you reach those goals. The more compelling you can make your summary, the better your first impressions will be.
• Market Analysis: By demonstrating you have done your due diligence thoroughly and have a complete grasp of the market you operate in, as well as your competition and target audience, lenders will be more likely to put confidence in you and your projections.
• Financial Projections: Make any financial projections as detailed as possible, whether it is future revenues, expenses, or profits, as lenders like us at Nucleus will appreciate the transparency. You should also be realistic and base your projections on solid assumptions, explaining to us exactly how you intend to use the loan to drive business.

Cash Flow Projections

On the subject of financial projections, always ensure you are accurate with your cash flow projections as you want to illustrate to your chosen lender exactly how you will manage and repay your loan, so demonstrating that you have steady and sufficient cash flow to cover your obligations using historical and current data will be key. Lenders also appreciate seeing that a business owner has contingency plans in place should some form of cash shortfall occur, as it helps to demonstrate that you manage your finances proactively.

Collateral

There are numerous types of collateral that a business will likely be in possession of that can be offered as collateral to secure a commercial loan. Property and equipment, as well as inventory or accounts receivable will help reduce the lender’s risk and will likely result in more favourable loan terms for your application, this of course isn’t so feasible for startups and smaller businesses.

Additional Considerations for Securing a Commercial Loan

Debt Service Coverage Ratio (DSCR)

Lenders will use DSCR to evaluate your business’s ability to manage any additional debt you have taken on, with a higher ratio enhancing your loan application chances. Your DSCR is calculated by dividing the net operating income by total debt service, and anything above a 1 is a positive, indicating that you are generating enough income to cover your debt obligations.

Loan-to-Value Ratio (LTV)

Lenders will prefer a lower LTV ratio because it means there is a cushion in the case of your business’s collateral losing its value, and because LTV is the ratio of the loan amount to the value of your collateral, lower ratios will indicate lower risks for the lender.

Industry and Economic Conditions

It is not unusual for lenders to take the industry your business is in into account when considering a loan approval, simply due to the fact that some are more risky than others, and when this is the case you can expect stricter scrutiny and potentially higher interest rates on your loan. Regardless of industry, in the case of economic uncertainties or downturns, lenders are likely to outright tighten their lending criterias to avoid potential losses.

Lender Relationships

Being able to demonstrate good past relationships with lenders, or having an already established relationship with the lender you are seeking a new loan from can improve your chances of approval, especially if you have been making timely repayments. Along with this, lenders will be more likely to extend credit to businesses that they know and trust, because they will be aware they are responsible.

There are many factors involved when commercial loan providers are assessing a business’s finance application, so by getting to grips with them, and taking your time with due diligence and preparing a strong, detailed application, you can greatly improve the likelihood that your application will be approved, and you can start using your secured loan to support your business’s growth and successes.