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:

  • high-street banks
  • challenger banks
  • Community Development Finance Institutions (CDFIs)
  • peer-to-peer platforms
  • other online providers

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

You can also approach a Community Development Finance Institution (CDFI). CDFIs specialise in lending to businesses that don’t fit other lenders’ criteria. They can take into account information about your business that other lenders aren’t able to - 9 out of 10 of the businesses they lend to have been declined by another lender - and offer loans alongside business support.

Learn more about CDFIs with Responsible FinanceLink opens in a new window

Other finance options

Click here to visit Expansion Capital
Equity
Expansion Capital firms give established businesses money to grow and reach maturity.

Expansion Capital

Investors like

Post revenue, profitable and growing businesses with a turnover typically between £5m and £50m. Businesses need to be willing to give up a stake in the business in exchange for finance.

You're looking for

Between £2m to £20m, depending on the shareholding you’re offering, to create new products, enter new markets, acquire other businesses or invest in new systems or equipment to drive growth.

Find out more about Expansion Capital
Expansion 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 Expansion Capital
Purpose of financessss Create new products, enter new markets, acquire other businesses or invest in new systems and equipment to drive growth
Amount of finance £2m-£20m (depending on % shareholding acquired and value of company)
Duration of finance 3-5 years
Cost of finance Due diligence and legal fees will apply. If you appoint an advisor, they will expect a retainer fee
Time of finance Minimum of 3 months but can be up to a year
About your business
Business stage Post-revenue, profitable and growing
Annual turnover £5m-£100m
Sectors All
Regions All
Click here to visit 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.

Private Equity

Investors like

Mature, growing and profitable business with an annual turnover typically between £10m and £100m.

You're looking for

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.

Find out more about Private Equity
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.
ABOUT Private Equity
Purpose of financessss Change in shareholder ownership, management buy-outs, acquisition, product development, entry into new markets
Amount of finance £10m-£50m
Duration of finance 3-5 years
Cost of finance Monitoring and director fees; loan note interest
Time of finance Minimum of 3 months but can take up to a year
About your business
Business stage Mature and growing; profitable
Annual turnover £10m-£100m
Sectors All sectors
Regions All
Click here to visit Direct Lending Fund
Debt
A business borrows money from a fund and repays it with interest. A fund may be able to provide loans where a bank will not.

Direct Lending Fund

Lenders like

Businesses with assets to use as security against lending.

You're looking to

Flexible and tailored loans and to maintain full control of your business.

Find out more about Direct Lending Fund
Direct Lending Fund
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 Established with assets and a trading history
Annual turnover Any
Sectors Any
Regions Any

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