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


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

What's your next step?

Other finance options

Expansion Capital
Expansion Capital firms give established businesses money to grow and reach maturity.
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Venture Capital
Venture Capital invests in businesses with high growth potential, often after Angel investors have got the business started.
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Businesses can borrow money on demand up to the limit of their overdraft. Overdrafts can be expensive, but a business will only pay interest on the amount they actually borrow.
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