How do business loans work?

Business loans are a form of borrowing designed for commercial organisations, rather than individuals. You can use this type of loan to either start up or support a company. You’ll agree to pay it back, including any interest, over a set period with regular repayments.

If you’re considering a business loan, understanding the process before you start can make the experience much less stressful.

Blue book with card illustration

How do you get a business loan?

Whether you want to start a new business or expand an existing one, a business loan could deliver the cash injection you need. Business loans for new businesses work in the same way as they do for existing ones but can be trickier to get approved. This is because you won't have an established credit history so may be seen as a higher risk.

What to consider before you apply

  1. Work out how much you need to borrow

    Do you need to buy new equipment or invest in a new initiative? Having a clear plan will help you decide how much you need to borrow.

    If you want to borrow between £1,000 to £50,000 use the Royal Bank Small Business Loan calculator to explore rates and repayment terms.

  2. Work out how much you can afford to repay

    It’s important to think about how long it’ll take for you to pay back a loan, and any interest. This will help you avoid any issues and charges in the future

  3. Decide on the kind of loan you need

    There is a range of lending options available, from short-term loans with less interest to pay, to long-term loans offering lower monthly payments. There are also Small Business Loans specifically designed for small to medium size businesses.

  4. Check your eligibility

    It’s a good idea to check your loan eligibility* before starting an application. This way, you’ll know how likely you are to be accepted for a loan before you apply and it won't impact on your credit score.

    *Only available for loans up to £50,000.


    Lenders want to ensure you’ll be able to pay them back, so they may look at things like:

    • Your business credit score
    • Lending history
    • Length of time in business
    • Annual revenues
    • Any assets you’ve put down as security
  5. Check the terms and conditions

    Carefully read through the terms and conditions of any business loan you apply for. This will help to prevent any costly surprises in the future. 

    Check for any additional charges like administration and application fees. Find out if you’ll face early repayment charges if you decide to pay off your loan sooner than planned. 

  6. Gather key documents and submit your application

    Once all those steps are complete, you can gather your documents together and start an application. Usually, the details you’ll need include:

    • The applicant and business name
    • How the loan will be used
    • The desired loan amount
    • Business tax ID


    If you are applying for a Royal Bank Small Business Loan, you'll need the following documents to complete your application:

    • Address history for the past 3 years
    • The date your business started trading
    • Business turnover in the last 12 months
    • Projected turnover in the next 12 months
    • Business net profit for the last 12 months
    • Details of any existing Business Loans or Overdraft repayments
    • Details of any existing Personal Loans, Mortgages, Overdraft or Credit Card repayments
    • Details of your business current account with any provider
Credit card with pound sign in a cloud bubble illustration

Repaying your business loan

If you get approved for a business loan, you must stick to the repayment terms and conditions, as laid out to you within your loan agreement document. 

Be sure to repay the agreed amount by the due date, whether it’s weekly, monthly or on a specific day. Missing payments can lead to penalties, increased interest rates, and potential damage to your business's credit standing.

Some lenders might even require businesses to repay their loans in full if certain terms and conditions aren’t met.

Can I be rejected for a business loan?

You could be rejected for a business loan if you fail to meet the lender’s eligibility criteria. A poor business credit score is one of the most common reasons for loan rejection. This suggests to the lender that you might not be able to pay back your debt. 

You could also be rejected due to:

  • Having a short credit history
  • Bankruptcy
  • Unverified income
  • An insufficient debt-to-income ratio
  • No or little collateral
  • Working in a high-risk market
X mark illustration

What to do if you’re rejected for a business loan

If you’re rejected for a business loan, it’s important not to instantly make more new applications. This could negatively impact your business credit score. 

Instead, try to find out why you were rejected. You have the right to ask your lender this within 30-60 days of the result and they’re required to tell you the reasons. 

You could also:

  • Look for errors in your application
  • Review your business credit score
  • Request a reconsideration

We have a guide on how you can appeal a lending decision here.

Green card being checked with a tick

Applying for a business loan

Think you’re ready to apply for a business loan? You can start the process online today. We offer a range of business loans to help companies get to the next level.

Find out more about Royal Bank business loans 

A business loan could benefit your company in a number of ways. From helping you get your plans off the ground to expanding to a new target market. But it’s a good idea to know how business loans work before you apply. 

Related content

Want to know more about the different options available when it comes to business borrowing and saving? Take a look at the rest of our guides:

Royal Bank Small Business Loan

How to get funding for your business

How can I borrow money to start my business?


Contact us

Want to talk to us about your business loan? Get help 24/7 with Cora , our digital assistant, or message us through our mobile app .

You can also contact us on 03456002230 Lines are open 9.00am – 5.30pm Monday to Friday (except public holidays). 

Customers with hearing and speech impairments can contact us by using our Relay UK Service: 18001 0345 600 2230

For more information visit the accessibility page.

Calls may be recorded for training and monitoring purposes.

To see how much your call might cost, visit the call charge information page.