Business Loans

A Business Loan is a straightforward form of finance provided by a lender. The lender provides finance which needs to be paid back together with interest over an agreed period.

Bank Loans and commercial mortgages are the fourth most popular form of external finance among UK SMEs

British Business Bank Analysis, SME Finance Monitor 2017

Key requirement

Secured Business Loans usually have lower rates of interest than Unsecured Business Loans

Key benefit

Decisions on Business Loans are made relatively quickly, usually within a few days if you provide the right information

Key consideration

Be clear in what your Business Loan will cost you in total. As well as interest, fees are likely to be payable

What is a Business Loan?

A Business Loan is a common form of finance for SMEs in the UK and one of the first ports of call for businesses looking to raise finance.

There are lots of Business Loan providers in the UK, ranging from high-street banks to challenger banks, responsible finance providers, Peer-to-Peer platforms and other online providers.

The one that suits you best depends on what you can afford and whether you meet the lender’s eligibility criteria.

Different types of Business Loans

There are lots of different types of Business Loans available in the UK ranging from short-term to longer term loans, to secured and unsecured loans.

A Secured Business Loan essentially means that you will need to use an asset from your balance sheet as security for the loan. Third party security may also be considered, such as a guarantee, that may or may not be supported by security.

An Unsecured Business Loan allows you to borrow without using any business assets as security. A personal guarantee is often required, which means the guarantor will need to pay back the loan if the business can’t. Unsecured Business Loans typically have higher rates of interest than Secured Business Loans.

Usually, property is used as security for a Business Loan but other assets like stocks and shares can also be used.

Am I eligible for a Business Loan?

There’s a wide range of requirements for Business Loans, and while every loan and provider are different, there are some common eligibility requirements:

  • Your business can demonstrate its ability to repay the loan
  • You’re based in the UK
  • No late payments or outstanding County Court Judgements (CCJs) as these affect your credit report and credit score. If you have either (or both) you may find it difficult to get a Business Loan

Getting a Business Loan with a poor credit rating

Your business credit score will have a direct impact on your application, however your personal credit report and score is also likely to be checked by lenders when reviewing your loan application.

If you have a poor business or personal credit score, you may find it more difficult to get a Business Loan or at least, you may not get the low rate of interest you’d originally hoped for.

There are several websites that enable you to check your credit score online before completing a loan application, along with details around how your score is calculated and what you can do to change it.

72% of new Business Loan applications were successful in Q2 2017

British Business Bank Analysis, SME Finance Monitor 2017

What if your business is declined a Loan?

The Bank Referral Scheme was introduced in November 2016 to help businesses access alternative finance if they are unsuccessful with some of the UK's major banks.

 

It's a legal requirement for participating banks to refer any unsuccessful applicants to designated finance platforms.

Who’s involved when you apply for a Business Loan?

Business Loans are straightforward in how they work. You, as a business owner, either apply online or in person, submit relevant documentation to allow the lender to carry out its checks, then wait to see if you’ve been successful in your application.

There are lots of eligibility checkers available online. These tools allow you to gauge if you will be successful with lenders before completing an application. This is known as a soft credit check and even if you are unsuccessful, it will not impact your credit score.

What are the details around Business Loans?

Your Business Loan will have a set duration, during which you will need to repay your loan together with interest. There may be charges for paying off your debt early as the lender will have committed those monies to your business.

The rate of interest you’re charged for your loan depends on how risky the advance is from the lender’s perspective.

For example, someone with good personal and business credit reports, who is willing to use an asset as security, will be deemed less of a risk than someone with poor personal and business credit reports, who is unwilling to provide security, and, as a result, is more likely to be approved for a loan with a favourable interest rate.

You could also be offered fixed or floating interest rates. A fixed interest rate will not change, so you know exactly what you need to pay for the duration of the loan. Floating rates are subject to change, depending on the lender’s interest rate and that of the Bank of England.

Benefits of Business Loans

Retain full control of your business

Flexible repayment schedules

Fixed rates of repayment

Access finance quickly

Risks of Business Loans

Charges

Late or missed repayments can result in charges.

Your credit report

Credit checks will be carried out to determine your eligibility for a Business Loan. This will impact your business credit report. If you default on loan repayments your business credit report and/or your personal credit rating may be affected.

Assets as security

Any assets used as security may be at risk if you default on a Business Loan.

Need to know / Checklist

  • What’s the interest rate?
  • Is the interest rate fixed?
  • How long is your Loan for?
  • Are there charges for early payment?
  • How will you use the Business Loan?

Key considerations / eligibility

  • Do you have assets to secure the loan against?
  • Can you afford the repayments?
  • Will you pay the loan off early if you’re able to?

Is a Business Loan right for you?

About your business

Business stageEstablished with assets and a trading history
Annual turnoverAny
SectorsAny
RegionsAny

What's your next step?

Other finance options

Corporate Venture Capital
Equity
Corporate Venture Capital is an investment made by a large company into a smaller business, in return for a share of that business.
{"mTitle1":"CORPORATE VENTURE CAPITAL","mTitle2":"Investors like","mPara2":"An early stage business - no revenue or profit is needed - willing to give up a share of control.","mTitle3":"You're looking for","mPara3":"£1m+ of finance within 6-12 months of your application for things like acquisition or research and development. ","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/corporate-venture-capital"}
{"section1Name":"ABOUT CORPORATE VENTURE CAPITAL","section1CTA":"LEARN MORE","section1URL":"/corporate-venture-capital","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Acquisition, research and development"},"row2":{"Title":"Amount of finance","Content":"£1m+, depending on business"},"row3":{"Title":"Duration of finance","Content":"3-5 years"},"row4":{"Title":"Cost of finance","Content":"None"},"row5":{"Title":"Time to finance","Content":"6-12 months"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/corporate-venture-capital","section2Rows":{"row1":{"Title":"Business stage","Content":"Any"},"row2":{"Title":"Annual turnover","Content":"Depends on the business"},"row3":{"Title":"Sectors","Content":"All"},"row4":{"Title":"Regions","Content":"All"}},"applyItems":{"item1":{"txt":"view the journey to finance","url":""},"item2":{"txt":"view the application checklist","url":""}}}
Angel Investment
Equity
Angel Investors act as mentors and invest their own money in early-stage businesses for a share in the company.
{"mTitle1":"ANGEL INVESTMENT","mTitle2":"Investors like","mPara2":"Early-stage businesses with a turnover of less than £5m. They invest in any sector but like businesses with a scalable business proposition.","mTitle3":"You're looking for","mPara3":"Between £15,000 and £500,000 within two to six months from a single Angel for working capital, product development, entry into new markets, to build teams or increase sales. Large Syndicates may offer up to £2m.","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/angel-investment"}
{"section1Name":"ABOUT ANGEL INVESTMENT","section1CTA":"LEARN MORE","section1URL":"/angel-investment","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Working capital, product development, entry into new markets, build teams, increase sales"},"row2":{"Title":"Amount of finance","Content":"Usually £15k-£500k, but large Syndicates may offer up to £2m"},"row3":{"Title":"Duration of finance","Content":"Typically 3-8 years"},"row4":{"Title":"Cost of finance","Content":"None"},"row5":{"Title":"Time to finance","Content":"2-6 months"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/angel-investment","section2Rows":{"row1":{"Title":"Business stage","Content":"Generally early stage, pre-revenue or pre-profit"},"row2":{"Title":"Annual turnover","Content":"Less than £5m"},"row3":{"Title":"Sectors","Content":"All sectors, but especially suitable for companies with a scalable business proposition"},"row4":{"Title":"Regions","Content":"All regions"}},"applyItems":{"item1":{"txt":"view the journey to finance","url":"https://www.british-business-bank.co.uk/finance-hub/wp-content/uploads/2018/04/Angel-Investments-teal-gold-purple2.pdf"},"item2":{"txt":"view the application checklist","url":"https://www.british-business-bank.co.uk/finance-hub/angel-checklist"}}}
Private Equity
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
{"mTitle1":"PRIVATE EQUITY","mTitle2":"Investors like","mPara2":"Mature, growing and profitable business with an annual turnover typically between £10m and £100m.","mTitle3":"You're looking for","mPara3":"Finance in the region of £10m to £50m to shake up your business through management buy-outs, acquisition, product development or entry into new markets.","mCTATxt":"FIND OUT MORE","mCTAUrl":"https://www.british-business-bank.co.uk/finance-hub/private-equity"}
{"section1Name":"ABOUT PRIVATE EQUITY","section1CTA":"LEARN MORE","section1URL":"/private-equity","section1Rows":{"row1":{"Title":"Purpose of finance","Content":"Change in shareholder ownership, management buy-outs, acquisition, product development, entry into new markets"},"row2":{"Title":"Amount of finance","Content":"£10m-£50m"},"row3":{"Title":"Duration of finance","Content":"3-5 years"},"row4":{"Title":"Cost of finance","Content":"Monitoring and director fees; loan note interest"},"row5":{"Title":"Time to finance","Content":"Minimum of 3 months but can take up to a year"}},"section2Name":"ABOUT YOUR BUSINESS","section2CTA":"LEARN MORE","section2URL":"/private-equity","section2Rows":{"row1":{"Title":"Business stage","Content":"Mature and growing; profitable"},"row2":{"Title":"Annual turnover","Content":"£10m-£100m"},"row3":{"Title":"Sectors","Content":"All sectors"},"row4":{"Title":"Regions","Content":"All"}},"applyItems":{"item1":{"txt":"view the journey to finance","url":"https://www.british-business-bank.co.uk/finance-hub/wp-content/uploads/2018/04/private_equity_purple_teal_yellow_white_disclaimer.pdf"},"item2":{"txt":"view the application checklist","url":"https://www.british-business-bank.co.uk/finance-hub/private-equity-checklist"}}}