Business Loans

A Business Loan is a common form of finance for SMEs and one of the first options for businesses looking to raise finance. The lender provides money that the borrower pays back, with interest, over an agreed period.

There are lots of Business Loan providers in the UK. They include:

• high-street banks
• challenger banks
• peer-to-peer platformsLink opens in a new window
• other online providers

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

There are many types of Business Loans available in the UK. They range from short-term to longer-term loans, and can be either secured or unsecured.

Secured Business Loan

With these loans, you’ll need to use an asset from your balance sheet as security. The lender may also consider third-party security, such as a guarantee, instead of or alongside other security.

Usually, property is used as security although other assets like stocks and shares can be used too.

Unsecured Business Loan

This allows you to borrow without using any business assets as security. Often, you’ll need to provide a personal guarantee that says you’ll pay back the loan if the business can’t.

Unsecured Business Loans typically have higher rates of interest than Secured Business Loans.

Every loan and loan provider is different, but there are some common requirements that all applicants will need to meet:

• Your business can demonstrate its ability to repay the loan
• You’re based in the UK
• You have no late payments or outstanding county court judgements (CCJs)

Your business credit scoreLink opens in a new window will have a direct impact on your application. However, when reviewing your loan application, lenders are likely to check your personal credit report and score too.

If either score is poor, you may find it more difficult to get a Business Loan. At the very 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. They also provide details around how your score is calculated and what you can do to change it.

The Bank Referral Scheme helps businesses access alternative finance if they are unsuccessful with their applications to some of the UK’s major banks.

By law, banks that participate in the scheme must refer any unsuccessful applicants to those alternative finance platforms.

As a business owner, you:

• apply either online or in person at a branch
• submit relevant documentation to allow the lender to carry out its checks
• wait to see if you’ve been successful

There are lots of eligibility checkers online. These allow you to gauge whether your application will be successful, before you submit it. This is known as a soft credit check and doesn’t affect your credit score, even if your application is turned down.

Terms of the loan

Repayment period

Your Business Loan will have a set duration, during which you’ll need to repay the amount you borrowed, plus interest.

The lender may charge you for paying off your debt early as it will have already committed that money to your business.

Interest rate

The rate of interest you pay depends on how risky the lender deems it is to advance you the money.

For example, if you:

• have good personal and business credit scores
• are willing to use an asset as security

you’ll be deemed less of a risk than someone who:

• has poor personal and business credit scores
• is unwilling to provide security

As a result, you’re more likely to be approved for a loan with a favourable interest rate.

The lender might also offer you a fixed or floating interest rate. A fixed interest rate doesn’t change, so you know exactly what you need to pay for the duration of the loan. Floating rates can change, according to both the lender’s interest rate and the rate set by the Bank of England.