5 things that will make or break your business loan application

Thinking about applying for a business loan? Here’s the reality: lenders aren’t going to just check your credit score and call it a day. They’re going to dig into the full picture of your business to figure out if you’re a solid bet.

Understanding what they care about can make the difference between approval and rejection. So let’s break down the five key things lenders really hone in on when they’re reviewing SME loan applications.

1. Your financial track record

Lenders aren’t typically impressed by businesses that are just scraping by – they want to see financial stability. They’ll look into your profit and loss statements, balance sheets, and cash flow forecasts to see if the numbers add up.

Messy books or missing records? That’s an obvious red flag. They’re won over by consistency and accuracy, so make sure your financial records are clean, current, and easy to follow. If your accounts look like they’ve been scribbled on the back of a napkin, it’s time to tidy them up.

2. How you handle your business bank account

Your bank account tells a story, and it’s one lenders want to read. They’ll look at how money flows in and out, whether you’re consistently in the red, and if your income is predictable or all over the place.

If you’re in the habit of mixing business and personal finances that could be a problem. A dedicated business account not only looks more professional, it makes it easier for lenders to see what’s actually going on. It boils down to this: keep things clean, maintain a healthy balance, and avoid unnecessary overdrafts.

3. Your credit scores (yes, both of them)

Here’s where it gets personal. Literally. Lenders may check both your business credit score and your personal one. Missed payments, CCJs, or a patchy credit history can raise doubts about whether you’ll pay them back, and lenders don’t tend to like that.

The good news? You can improve your score. Pay bills on time, chip away at existing debt, and avoid applying for credit you don’t need. Check your score regularly through free services like Experian so there are no nasty surprises.

4. Why you actually need the money

Lenders don’t just hand over cash and hope for the best. They want to know exactly what you’re planning to do with it, and whether your plan makes sense.

This means being specific. “I need £50k for growth” won’t cut it. Break down how much you need, what it’ll be spent on (equipment, hiring, marketing, stock), and what impact you anticipate it having. A clear, well-thought-out plan will show you’re serious.

5. Whether you can actually afford to repay

This is the really big one. Lenders will calculate your debt service coverage ratio (DSCR) to see whether your income can comfortably cover loan repayments plus your existing debts.

A good rule of thumb is to aim for a DSCR of at least 1.25, meaning your income is 25% higher than your debt obligations. If you’re below that, it might be worth holding off on the application until you boost profitability, or you manage to clear some existing liabilities.

The bottom line

Getting loan-ready isn’t about luck, it’s about being organised, transparent, and financially secure. Lenders are looking for businesses they can trust to repay what they borrow, and it’s up to you to show them you fit snugly into that category.