How Can a Small Business Prepare for a Loan?

I often notice that entrepreneurs put off going to the bank for years because they are afraid of being rejected. Others, on the contrary, apply for a loan at the last minute, when a cash flow gap has already brought their business to a standstill. Both approaches lead to stress. In reality, businesses today have far more opportunities to secure financing than many people realise. Of course, this requires a realistic approach and preparation in advance. I want to give you a clear action plan that will help you get a small business loan without panic or unnecessary obstacles.

Let me make one thing clear: a loan for a small business or other type of business is not a lifeline. If a company is generating losses, a loan will only postpone the problem and increase its debt. But if you have a healthy small business that simply lacks working capital, this is one of the situations where a loan can be an effective financial tool for raising funds.

Here are some of the most common situations when it is worth considering small business financing:

• Cash flow gap. Suppliers need to be paid today, while customers will pay in 30–45 days. A loan helps you get through this period without interrupting your operations.
• Seasonality. Imagine that before the “high season” you need to purchase raw materials or stock, but you do not have enough savings. In this case, a loan is a tool that can help you earn more.
• Growth. You are planning to open a new location, launch an additional business line or purchase equipment. In this case, you are looking at a loan for small business development.
• Large contracts. You have received a profitable order, but completing it requires upfront financing. A bank may provide funds against a specific contract.

Today, the market offers many options. Small business lending programs can be broadly divided into three major groups.

This is the most common option for entrepreneurs who need funds for development. Banks offer targeted loans for replenishing working capital, investment projects, purchasing equipment, vehicles or other assets for the business. Depending on the amount and terms, a loan may be issued with or without collateral.

A revolving credit line is a popular solution. In this case, the entrepreneur gets access to a certain credit limit and pays interest only on the amount actually used. This is convenient for companies with uneven cash flow or seasonal operations.

Another area is government support programs. The best-known one is the “Affordable Loans 5-7-9%” program, implemented by the Entrepreneurship Development Fund. Through partial interest-rate compensation, businesses can obtain financing on significantly more favourable terms than under standard bank programs.

I will tell you more about it below.

Another source of financing is international funds and organisations. In many cases, these are not traditional loans, but grants that do not have to be repaid or loans with preferential interest rates. Such support may be provided by international financial organisations, donor funds and international technical assistance programs.

To obtain this type of financing, you usually need to prepare a detailed business plan, describe the project's objectives and demonstrate its economic viability. The application process is more complicated than with a bank, but in return entrepreneurs may receive more flexible terms, consulting support and additional opportunities for business development.

So that your meeting with a bank manager does not feel like an interrogation, let me explain how the bank approaches the process.

Here, everything is quite specific: what turnover goes through your accounts, whether the business is profitable, and how taxes are paid. If you are a sole proprietor, the bank will request bank statements and tax returns. For legal entities, liquidity indicators and the ratio of equity to borrowed funds are also important. The more transparent the picture, the greater the trust.

Both your personal history as a borrower and the reputation of your business are taken into account. You can check your own credit history through the Ukrainian Bureau of Credit Histories (UBCH). Even if you have never had a loan, this does not automatically mean your application will be rejected, but in that case it may be worth starting with smaller loans.

The bank evaluates the guarantees for repayment. These may include collateral such as real estate, a vehicle or equipment, a guarantee from a financially stable person, or property rights under a contract. There are also unsecured products, but their interest rates are usually higher and the available amounts are smaller.

I recommend collecting this package before visiting the bank. It will immediately demonstrate that you are taking the process seriously.

Basic package for sole proprietors and small businesses:

• passport and tax identification number of the business owner;
• extract from the Unified State Register or other registration documents;
• tax returns for the last 1–2 years (for sole proprietors — simplified tax returns or personal income and property tax returns);
• bank statements for the last 6–12 months;
• the company's financial statements (for legal entities — balance sheet and income statement; for small businesses — simplified Forms No. 1-m and No. 2-m);
• documents confirming business activity: contracts with key customers and suppliers, invoices, certificates of completed work or delivery notes;
• documents for collateral, if the loan requires security;
• a brief description of how the loan funds will be used — what exactly the funds are needed for, what sources will be used to repay the loan, and how this will affect business development;
• if you are planning to scale up, it is also worth adding a detailed business plan with financial forecasts. This will show the bank that you are planning your business development and understand the sources of loan repayment, rather than simply trying to cover a financial gap.

I have identified five rules that can help you obtain a small business loan in Ukraine:

1. Get your reporting in order. Maintain transparent financial records and reflect the business's actual income and expenses. All financial statements should correspond to actual turnover.
2. Show cash flow. Even if profits are still small, stable account turnover is evidence that the business is viable. Regular incoming payments are more convincing than any promises.
3. Define a clear purpose. “I need money” is a weak strategy. “I am taking out a loan to develop my small business — to purchase a new production line that will increase revenue by 20%” is a much stronger case.
4. Demonstrate tax discipline. Paying taxes on time is one of the best indicators of reliability. Banks value businesses that maintain good standing with the government.
5. Start small. If you have no credit history, take out a small overdraft or short-term loan and repay it on time. It will make it much easier to obtain loans in the future.

I would like to focus separately on government support because many people have heard about it but do not understand the details. Government loans for small businesses under the “5-7-9” program are a real opportunity to obtain financing at a low interest rate. The amount of interest-rate compensation depends on the purpose of financing and whether the borrower meets the program's requirements. Special rates apply to certain areas, including business recovery and energy projects.

Key terms:

• Interest rate. The interest rate depends on the financing purpose and program terms. For most areas, it is 5–9% per year, while lower preferential rates may apply to certain business categories and special programs.
• Amount. Depends on the purpose. For sole proprietors — up to UAH 3 million; for standard investments and agricultural projects — UAH 60–90 million. For reconstruction and the purchase of energy equipment (generators, cogeneration systems), the limits have been increased to UAH 150–250 million.
• Purposes. Priority is given to the purchase of equipment, construction, processing and energy modernisation. Limits for standard working capital financing have been significantly restricted.
• Term. Up to 5 years for working capital and up to 10 years for investment projects.

An important point: loans for small businesses under this program are issued by regular partner banks, while the government compensates them for part of the interest.

Finally, let's look at the most common mistakes entrepreneurs make.

Preparing your business for financing is not about “getting money at any cost”, but about building a healthy relationship with the bank. Gather your documents, get your reporting in order, clearly define your purpose — and confidently go to your meeting with the bank manager. Then the meeting with the bank will become not a challenge, but the beginning of a partnership that can help your business grow.

Translation into English was created with the help of artificial intelligence.