Choosing a Loan for Your Business: 8 Factors to Consider

When it comes to running a business, keeping financially afloat is everything. Without the right funds behind you, your operation will fall at the first hurdle. No matter what sector you specialize in, or the size of your company, you may need to take out a loan to financially support your business.

Before going down this route, there are several factors to consider first. This will not only help you find a suitable loan for your needs, but it will also potentially propel your business forward. Here is what you need to know before choosing a loan for your company.

Size of the Loan

One of the first things you need to decide before choosing a business loan is how much do you need. You will find that how much you want and what the lender provides are often two different, yet related factors to take into consideration. Make sure that you factor fees into how much you actually need. This is because it will be a big factor in picking a business loan.

When shopping around for a business loan, not every lender or business financing option can give you the exact amount you want. Also, be realistic with how much you can afford to borrow. The last thing you want is to fall behind and get into further debt.

Repayment Terms

Before taking out any kind of business loan, look at the repayment terms. This will give you a clear view of how long your financial arrangement will run for. Shorter-term loans often require higher periodic payments, whereas a longer loan can accumulate a higher interest amount the longer it runs. Another factor to consider is how regularly you need to pay off the loan, as well as the amount.

Also, you should establish how flexible the lender will be in terms of your payment schedule. For instance, there may come a month where you’re struggling to keep on top of repayments. Should the lender not be willing to allocate extra time for you to pay, this can result in hefty additional fees, which can make it difficult to keep afloat. Even if you’re financially stable and find you’re able to pay off the loan in full early, there could be exit fees or penalties from the lender, which must be taken into account.

If you only require short-term financing, it may be wise to look into Pay Day Loans, which is where Payday UK can help. This online payday loan broker has helped thousands of people obtain small loans for all sorts of reasons. Payday UK has a straightforward application process that makes it quick and simple to find the right loan.

Fee and Interest Structures

When researching business loans, the first things that usually spring to mind are the fees and interest structures. The interest rate determines how much you’ll actually pay for your loan. As a rule of thumb, lower rates are preferred. Several factors will determine how much interest the lender will charge. This can include the type of loan you take out, as well as your credit history.

Business owners after a competitive interest rate should compare several quotations from lenders before picking one. It can be easy to select the first loan you see, especially if the fees and interest rates aren’t too high. However, there may be a better one just around the corner. Patience can pay off, so don’t rush into making any rash decisions.

Application Requirements

When applying for a business loan, you’ll quickly discover that each lender will have different application requirements. While most will look at your credit history before going further, some may require a criminal and financial background check. You may find some enquire about your debt-to-equity ratio. Instead of being alarmed and put on the spot, you should get everything in check before navigating the process. This will help you feel fully prepared and not be caught off guard.

Should you opt for a business loan from a bank, it may require particular insurance policies. This is for their own protection.

Credit Score

Your credit score matters more than anything, as it enables you to access many savings and benefits. These include loans with the most favourable terms. Understandably, the better your credit score is, the more chance you have of securing the loan you want. With a higher credit score, the lender will charge a lower APR because you are a lower risk.

If your credit score isn’t the best, this could ruin your chances of being accepted for a business loan. Thankfully, there are things you can do to build your credit score, such as ensuring you have a regular turnover through your business bank account. What’s more, if you have a solid credit score, you’ll have more financial options to pick from.


The decision to take out a business loan should never be done on a whim. With so many lenders fighting for your attention, you may be lured into a false sense of security and pick the first one you see. Unfortunately, while most are reputable and trustworthy, some companies aren’t the most reliable. As lenders will check your eligibility before they approve your loan, you should do the same thing too.

It’s always best to stick with the top-rated lenders, rather than opting for one without testimonials and reviews. Also, the lender needs to communicate effectively with you, which will give you confidence they’re suitable.

Business Status and Assets

Not only should you know exactly where to get financing, but you should also consider your capacity to pay for it. In business, you always need to think about the future, rather than solely focusing on the present. You should never take out a loan that you have doubts about paying back. This will only cause a higher debt amount, which will increase if you’re unable to make repayments.

Also, your business’s assets and growth potential can be a factor in obtaining a loan. Assets act as collateral for lenders. This means if you’re unable to pay the loan back, the lender will go down the route of liquidating your business’s assets for payments.


As you would expect with most things in life, the less urgently you need the loan, the better options you’ll have. If you have time before requiring a loan, try and use this to your advantage. You could spend time searching for suitable lenders or build up your credit score.

If you believe you may need a business loan in the upcoming months, begin preparing in advance. You will want the application process to run smoothly, rather than come up against hurdles. As long as you know what to expect and what needs to be done in advance, you shouldn’t have a hard time being accepted for a business loan.

Whether you’re planning to expand your company, create funds for the future, purchase equipment to run your operation, or just need a helping hand, a business loan can help keep you on track. Before committing to one, make sure you’re aware of the factors above. This will avoid any nasty surprises and ensure you get a loan and repayment terms that suit your needs.

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