Business loans

When a lender provides money that the borrowing business repays, with interest, over an agreed period.

Business loans are very common and one of the first options for businesses looking to raise finance. The lender provides money that you, as the borrower, pay back, with interest, over an agreed period.

Types of business loan

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 personally if the business can’t.

Unsecured loans typically have higher interest rates than secured loans.

Repayment period

Your business loan will have a set repayment period. During this time, you’ll need to pay back 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.

There are lots of business loan providers in the UK. They include:

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

  • Retain full control of your business
  • Flexible repayment schedules
  • Fixed rates of repayment
  • Access finance quickly

Charges

You might have to pay a fee if you’re late with a payment or miss one altogether.

Your credit report

The lender will carry out a credit check to determine whether you qualify for a business loan. This will have an impact on your business credit report. If you default on your loan repayments (fail to make them), it may affect your business credit report and/or your personal credit rating.

Assets as security

Any assets you use as security (property, for example) may be at risk if you default on a business loan.

Every loan and loan provider is different. However, there are some common requirements that all applicants will need to meet. Your business must:

  • be able to demonstrate that it can afford to repay the loan
  • be based in the UK
  • have no late payments or outstanding county court judgments (CCJs)

Your business credit score will have a direct impact on whether or not your application is approved. 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. Learn how to improve your business credit score

There are several websites that let you check your credit score online before you complete a loan application. They also provide details around how your score is calculated and what you can do to change it.

Some questions to ask yourself

  • How will I use the business loan?
  • Do I have assets against which to secure the loan?
  • Can I afford the repayments?
  • Will I pay the loan off early if I'm able to?
  • What’s the interest rate? Is it rate fixed?
  • How long is the loan for?
  • Are there charges for paying it back early?

To get a business loan from a bank or other lender, you can apply:

  • online
  • in person at a branch

You'll need to submit relevant documents that the lender will use to carry out its checks.

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.

If your business has been unsuccessful in applying for finance from some of the UK's major banks, the Bank Referral Scheme could help you find finance elsewhere.

If the scheme doesn't work for you, the participating banks must, by law, offer you a referral to another finance platform.

Learn more about the Bank Referral SchemeLink opens in a new window

Other finance options

Click here to visit Venture Capital
Equity
Venture Capital invests in businesses with high growth potential, often after Angel investors have got the business started.

Venture Capital

Investors like

Early stage businesses, regardless of whether they have made a profit or revenue, with an annual turnover of less than £3m.

You're looking for

Significant growth and £1m+ of finance within six to 12 months with the option for multiple funding rounds.

Find out more about Venture Capital
Venture Capital
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
ABOUT Venture Capital
Purpose of financessss Acquisition; research and development
Amount of finance £1m+, depending on funding round
Duration of finance 5-10 years
Cost of finance None
Time of finance 6-12 months
About your business
Business stage Early stage; no revenue or profit needed
Annual turnover Depends on the business, but is often below £3m
Sectors All
Regions All
Click here to visit Invoice finance
Debt
Businesses sell or borrow against their unpaid invoices, giving them access to the money before the invoices are paid.

Invoice finance

Providers like

Businesses of all sizes and stage of growth with invoices.

You're looking to

Capitalise on an untapped asset on your balance sheet to raise finance quickly.

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Invoice finance
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
About your business
Business stage Any but must have invoices
Annual turnover Any
Sectors Any
Regions Any
Click here to visit Leasing & Hire Purchase
Debt
A business can use Leasing and Hire Purchase to buy specific assets, like vehicles, machinery or other equipment.

Leasing & Hire Purchase

Providers like

Businesses at all stages who can demonstrate their ability to fund payments.

You're looking to

Get finance to acquire equipment, machinery and vehicles without putting a strain on your working capital.

Find out more about Leasing & Hire Purchase
Leasing & Hire Purchase
Equity
Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
About your business
Business stage Early stage to established with a trading history
Annual turnover Any
Sectors Any
Regions Any

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