Small business loans: 4 golden rules to follow

Dakota Murphey
Business Growth Consultant
28th October 2019

If you own a business and are struggling to fund the buying decisions you want to make, applying for a small business loan could be a good call. These loans help provide businesses with enough money to get them off the ground, generate profit and attract more customers. Deciding to apply for one is, in essence, choosing to invest in yourself. 

However, while these loans may be slightly less restrictive than other loans, they are still a loan at the end of the day, so whatever amount you decide to borrow will need to be paid back eventually. Lenders aren’t simply giving away free money so, when you apply, it’s important to remain cautious. Fail to make your repayments on time, and your business could be taken away from you. 

While this may all sound scary, it doesn’t have to be. By following the four key rules we’ve listed below, you can feel rest assured that your small business debt won’t subdue your company’s potential any time soon. 

1. Borrow only what you need. 

The first, and perhaps most important, rule to follow when applying for a small business loan is to understand how much you actually need to borrow. While it may be tempting to ask for more than you need, it’s important to be sensible and borrow only what you think your business actually requires. 

For example, if you are using your loan to cover office furniture expenses, don’t buy the most expensive office chairs and supplies you can find – go for second-hand options and save money. After all, the more money you can save, the less you will need to ask for from a lender. In turn, this will make your repayments substantially lower and enable you to pay off your loan sooner rather than later. 

2. Find the right lender.

Banks aren’t the only providers of small business loans and, in actual fact, choosing to go with an alternative lender could save you a lot of hassle. 

Applying to a bank or other traditional lender typically involves a ton of paperwork, and it can take months to hear whether your application has been accepted or not. Of course, this isn’t always the case but, in order for a bank to approve you, your business will need to have been running for at least two years and have a stellar credit score to its name. 

Alternative small business lenders don’t have the same requirements, and are often a lot quicker at getting back with their decision. However, make sure you look at their track record and reputation before applying. Look for other businesses whose goals and financial circumstances were similar to your own and assess how each potential lender helped them. 

3. Have money? Bank it.

When applying for a business loan, lenders are going to scrutinise your bank account in fine detail. Therefore, the more money you have in there, the less risky it’ll come across. 

Lenders want to make sure you will be able to pay off your debt while also covering your other business costs, like your payroll, inventory, rent, etc. The best way of proving this to them is by showing that there is more money coming into your business than going out. Keep an eye on your bank statements and make it clear and obvious that your business doesn’t struggle with tight margins each month. 

4. Get your documents ready.

One of the most demanding aspects when applying for a small business loan, ensuring you have all the necessary documents ready can be an incredibly cumbersome process. Banks typically ask you to provide various documents along with a series of application forms, whereas alternative lenders offer a much quicker service that requires much fewer documents. 

These types of documents tend to vary lender-by-lender but generally, you will need to submit a profit and loss statement, a balance sheet, and a cash flow statement along with your application. You may also need to provide a personal tax returns, credit card statement, and a personal financial statement – basically any document that proves your business is gaining a steady stream of income. By having these documents ready in advance of applying, you could save yourself a ton of time. 


Applying for a small business loan can be a highly effective business decision, but only when done right. If you aren’t cautious about it going in, you could find yourself in a lot of debt and actually end up losing your business. 

Don’t allow that to that happen – follow our four golden rules and make sure to always pay your lender on time.

Do you want to join the conversation?

Sign up here
  • Join the Chamber

    Connect, share & grow - raise your business profile locally & nationally through the largest membership organisation in the South West.

  • 21,000 businesses trust us to help them start, grow, innovate & export - as well as lobby government on their behalf.