How lenders assess SMEs in 2025
The capital to invest in new equipment, hire skilled talent, or expand into fresh markets can be a game-changer. And, for many enterprises, business loans are the most direct and effective way to secure that crucial investment.
But while applying for a loan may be simple, getting approved isn’t always as straightforward.
Joe Phelan, money.co.uk business loans expert says:
“What stands between your small business and its next stage of growth? Often, it’s access to funding.
Lenders take a broad, data-driven view when assessing applications, looking at everything from your credit score to your cash flow and business plan. But ultimately, it comes down to risk. They want to be confident you can repay what you borrow. That means proving your business is financially stable, well-run, and unlikely to default. It means preparing.
So what does it mean to be truly loan ready? Here’s what lenders are really looking for – and how to get ahead before you apply.
1. Get your financial records in order
Lenders want a clear picture of your business’s financial health. Expect to provide up-to-date records, including your profit and loss statement, balance sheet, and cash flow forecast. They’ll be looking for consistency, accuracy, and transparency.
Make sure your bookkeeping is watertight. Consider working with an accountant or using cloud accounting software to generate clean reports. You should also double-check your Companies House filings and ensure your accounts are up to date.
2. Build a strong business bank account history
How you manage your business bank account matters. Lenders will review your account to assess cash flow stability, income patterns, and your ability to manage expenses.
If you’re still using a personal account for business transactions, maybe it’s time to switch to a dedicated business bank account. This not only looks more professional, but helps lenders assess your finances more accurately. Try to maintain a healthy balance and avoid dipping into the red unless necessary.
3. Know your credit score – and do all you can to improve it
Both your personal and business credit scores can impact your loan application. Missed payments, County Court Judgments (CCJs), or a lack of credit history could raise red flags. Conversely, a healthy credit score shows you’re a responsible borrower.
Check your credit score regularly via free services like Experian. If your score is lower than you’d like, start building it by paying bills on time, reducing existing debt, and avoiding unnecessary credit applications.
4. Have a clear plan for the funds
Lenders don’t just want to know if you can repay a loan – they also want to know why you need it, and how it will help your business grow. A strong, well-thought-out funding plan demonstrates purpose, strategy, and intent.
Outline exactly how much you want to borrow, how it will be spent, and what kind of return or impact it’s expected to deliver. This could be part of a wider business plan, or presented as a standalone proposal.
5. Understand your debt-to-income ratio
Your ability to repay a loan is a key part of any credit decision. Lenders will calculate your debt service coverage ratio (DSCR) or similar metrics to ensure your business generates enough income to cover repayments.
As a rule of thumb, aim for a DSCR of 1.25 or above, meaning your income is at least 25% higher than your debt obligations. If you’re not quite there, it might be worth delaying your application while you improve profitability or reduce some existing liabilities.
6. Consider your business structure
Your company’s legal structure can affect the type and size of loans you’re eligible for. Generally, limited companies have access to a wider range of lending options compared to sole traders, who may be assessed more heavily on their personal creditworthiness. If you’re currently operating as a sole trader, it may be worth exploring whether incorporating could open up better funding opportunities.
Preparation pays
In a competitive lending landscape, being loan ready is about more than optimism – it’s about being organised, strategic, and financially savvy. By taking these steps before applying, you can not only improve your chances of getting approved, but also position your business to borrow smarter.
Want to see your loan options fast? Use our free tool to check your eligibility and compare offers matched to your business needs, with no impact on your credit score. You could be approved in as little as 24 hours.
Don’t wait until the paperwork is due – the best time to start building your case is now.”