Compare UK Business Loans

A business loan can be the crucial first step in getting your business off the ground, or helping it expand at a later date if you don’t have the necessary capital to fund it yourself. If you’re wondering how to get a business loan in the UK, here are five key steps you’ll need to go through.

You’ll need to produce a solid business plan to give the lender confidence that you’ll be able to repay the loan. This should be a core part of starting a business anyway – and if you’ve been in business a while, it’s worth looking at updating it – but it becomes even more important if you’re seeking funding.

You’ll need to collate a lot of other information in order to apply as well, such as your balance sheet and bank statements (if you’re already trading), and you’ll need to specify how much you’re looking to borrow and why you need it. The lender can’t have any say in what you use the loan for, but they expect it to be used for business purposes. You may also be asked to put up some form of collateral as security when processing your loan, so make sure you know what you’ll be putting up (typically property or related business assets) and have all relevant details to hand.

Having a poor credit score can hold you back from getting a business loan approved, so if it’s been a while since you’ve checked your profile, now’s the time to see where you stand. You can check your credit score through a number of different platforms –TotallyMoney give you completely free access to your credit report – and if it’s less than perfect, make sure to find ways to improve your score before you apply for finance.

If you’ve already been trading for a while, bear in mind that the credit worthiness of your business will also be taken into account in your application, as your business will build up its own credit rating. This means you need to make sure that you stay on top of your financial commitments at all times in order to prove to a lender that your business can repay its debts. However, even with a poor credit history, all may not be lost; it’s possible to get bad credit business loans from certain providers, though be prepared to pay higher interest rates for the privilege.

There are a lot of options available when it comes to business funding, from straightforward loans to invoice factoring and asset finance, so make sure to do your research to see the kind of options available. And, if it’s a standard business loan you’re looking for, remember that there are a lot of options when it comes to providers, too, whether you’d prefer a well-known name from the high street or want to go to the specialists. Make sure to shop around to find the best deal, and consider using a broker, who can not only do the legwork for you, but will also often have access to deals not available anywhere else. 

Our preferred broker Watts Commercial Finance Ltd could be a great place to start.

While you may be tempted to head straight to providers in search of business finance, don’t forget the possibility of seeking Government support. This is particularly the case in the current climate, with the UK’s Recovery Loan Scheme (RLS) – the replacement to the Coronavirus Business Interruption Loan Scheme (CBILS) – accepting applications from those businesses that have been impacted by the Coronavirus pandemic until 31 December 2021. Find out more about how to apply for the Recovery Loan Scheme and see if you’re eligible for Covid business loans.

You’ll be able to find other Government loans for small businesses in the UK as well, with particular support available for those starting new ventures (such as through the Government-backed Start Up Loan scheme). There are also various grants that can be applied for, again, make sure to do your research to see what Government business loans and grants are available.

The final step is applying for the loan. The process may differ depending on the lender, but as a general rule, you’ll be expected to complete an application form that includes all relevant information, such as how much you want to borrow, why you want to borrow it, your business plan and bank statements, and if appropriate, your balance sheet and associated profit/loss information.

You’ll also need to provide personal details, often with evidence of your financial history, in order to give the lender everything they need to progress your application.

Make sure to go through your application carefully before you submit, as when it comes to business loans, attention to detail is key. Even a small mistake could see your application rejected, so always double-check the details. Once submitted, the lender will assess your suitability and will run a credit check – as mentioned in step two, you’ll need to have a good credit score to be eligible for the best deals – before deciding whether or not they can lend to you, and if so, how much they’ll offer and at what interest rate. You’re then free to decide whether to accept or reject the offer based on your circumstances.

One final point on this: don’t apply for too many loans at once. Not only could this give the wrong impression to lenders, who may think that you’re struggling to be approved, but if several lenders run credit checks, it could result in a dip to your credit score which could have a knock-on effect on your application’s success. Instead, if you want to get an idea of the kind of loan you could be offered and at what rate, speak to a business loans broker - they know the requirements of most lenders and the types of terms they might be able to offer.

If you’ve got a less-than-perfect credit score, it may be more difficult to source the necessary funding for your small business. But that doesn’t mean it’s impossible; you may simply need to be more selective in where you apply for a loan, or accept higher interest rates and fees than you’d have hoped. This is because if you or your business has a bad credit score, you’ll be classed as higher risk, and the lender will charge you more accordingly.

Even then, you may struggle to source finance from mainstream lenders (such as high street banks), but there are lenders that specialise in offering bad credit business loans. Some will require guarantors – those that don’t will typically come with higher rates – and all will require a solid business plan. If you’ve got valuable business assets and/or a high turnover you may find it easier to be approved.

Make sure to compare several business loans for bad credit before you decide, factoring in everything from the interest rate to the fees and any additional costs involved, and ideally speak to your accountant or financial adviser beforehand to make sure that taking on such a loan is the best course of action for your business.

However, there are alternative methods to finance a small business with bad credit, such as loans that are secured against a business asset, or even a Government grant, in which case having a poor credit score won’t matter as there’s no expectation of the money being repaid. A business cash advance could also be a solution – whereby the money is repaid from future sales – though you’ll need a viable and profitable business for this to be an option.

Business loans in the UK work in much the same way as personal loans, in that you’re lent a lump sum of money that you’re expected to repay over a pre-agreed term at a pre-agreed interest rate.

New business loans will usually be individually priced and have negotiable terms and conditions. The provider will want to take a detailed look at your past accounts and current balance sheet as well as your future forecasts and plans. From that, they’ll determine the credit risk that your business presents, and price the interest rate accordingly.

Some providers will offer a fixed rate option, so your business can budget for the loan repayments, though many business loans have a variable rate, which means the rate (and therefore your repayments) could change. Providers can also be very flexible on the loan term – business loans can be offered for far longer terms than personal loans, but remember that while a longer term means lower payments, it also means more interest to pay over the term of the loan. Short term business loans are also on offer.

For some business loans a lender may ask you to put up collateral as security should you not be able to make the repayments on your loan. If your business is new, or doesn’t have assets to put up as collateral, you may be asked to put up your personal property as security instead. There may be a fee to pay to arrange the loan as well, which is often negotiable.

Anyone who’s over the age of 18, is a UK resident and owns or is starting up a business can apply for business loans in the UK. However, there are other criteria that you’ll normally have to pass depending on your lender, such as your credit history and (if applicable) your trading history, and you may find that certain businesses are excluded from business finance as well, such as those related to weapons or gambling.

Getting the cheapest business loans will depend on a lot of different factors and relies on you (and your business) having the very best credit rating, but a lot comes down to how much you want to borrow, and where you look for the loan in the first place. Different lenders will always have different criteria and will offer different business loan rates accordingly, so comparing the options is essential to make sure you’re getting the very best business loan in the UK. Our comparison table can help.

This will depend entirely on your own personal and business circumstances, with rates always individually priced. Business loan rates in the UK are typically variable, though some lenders will offer fixed rates that can offer a greater level of repayment certainty. The term will also come into it: short-term business loans of a few months are possible, even a few days in some cases, but these will typically come with much higher interest rates.

Either way, interest rates tend be a better than borrowing from alternative sources (such as business credit cards), but you’ll need to approach a lender to get an accurate idea of the interest rate you’ll be offered. The exception to this is if you’re seeking a Government-backed Start Up Loan, in which case you’ll be charged a fixed interest rate of 6% over a term of between one and five years.

As above, this all depends on your individual circumstances, particularly your credit history and the type of business you’re looking to run. Typically speaking, you’ll be able to borrow anywhere from £1,000 to £3m over terms of between one month and five years – though loans are possible outside of these parameters – depending on the lender and nature of your business.

It can vary according to a whole range of factors, not least the amount you’re looking to borrow – a £50,000 business loan will always have different cost considerations to a £3,000 loan, but let’s take a look at a couple of examples to see how much a business loan might cost.

Example one: A small start-up loan of £10,000 over 24 months with an interest rate of 4% could result in monthly payments of £434.25, with total interest payments of £422 over the two-year term and a total cost of £10,422.

Example two: A more substantial loan of £50,000 taken out over 60 months at a rate of 2.5% would result in monthly repayments of £887.37 and a total cost of £53,242.20, with over £3,000 paid in interest.

Example three: A significant loan of £1,000,000 spread over 10 years at a rate of 3% could lead to monthly repayments of £9,656.07, £1,322.74 would be interest, resulting in a total interest cost of £158,782.40 and a total cost of finance of £1,158,728.40.

However, remember that everything is negotiable when it comes to business loans, and the exact rate and terms offered by the lender will vary according to your unique requirements. This is why it’s so important to do your research to ensure you’re getting the best terms for your needs. As an aside, make sure to factor in any fees that may be charged by the lender, which can add to the total cost of any loan.

Yes, though the options available may be more limited, particularly if it’s for a start-up loan and you have no evidence of trading, as lenders will view you as higher risk. This is where credit scores really matter, so it’s important to make sure yours is the best it can be. There may also be different self-employed business loans to choose from depending on your business setup, be it a sole trader, a partnership or a limited company; make sure to speak to the specialists to see the options available.

Find out more in our guide about how being self employed can affect your finances. 

A limited company business loan is used in situations where the business is an entirely separate legal entity to the owners, with the company itself being liable for the debt.

Small business loans can be used for just about anything your business needs, from buying premises to employing staff, and even buying stock or vital equipment. You may need a loan at the outset to set up your company, or further along your journey if you’re looking to expand, depending on your business’ status and your level of capital. You may even want a loan to buy a business outright, allowing you to take over an already-established company. No matter your plans, you’ll be expected to tell your lender what you’re going to use the money for, but they can’t dictate what you do with it.

Start-up business loans are loans that are specifically designed to help fledgling businesses get off the ground. You may be able to find such loans through both mainstream and specialist lenders, or through the Government’s Start Up Loan scheme if you’re finding it difficult to be approved elsewhere.

The Government offers several loans and grants to businesses, particularly those who are just starting out. Perhaps the most well-known is the Start Up Loan scheme, which offers loans of up to £25,000 with terms of between one and five years and a fixed interest rate of 6%. There’s also the Seed Enterprise Investment Scheme (SEIS), which offers tax relief to investors who buy shares in your company, and there are a range of other grants that are dependent on your location and available through various local enterprise partnerships, such as the New Enterprise Allowance Scheme and Innovate UK. See what’s available with the help of the business finance support finder.

A more recent form of support has come from the Recovery Loan Scheme (RLS), which has been specifically set up to offer loans to businesses that have been affected by the Coronavirus pandemic. This is available up to 31 December 2021. In a similar vein, SEISS grants are available for self-employed individuals who have either been unable to trade or have seen their income drop due to the pandemic, but must be claimed before 30 September 2021. There may be additional support available as well depending on your industry; find out more on the Government website.

No, particularly if you go through specialist providers that solely offer finance rather than related banking products. That said, some lenders may offer preferential rates for loyal customers, and you’ll be expected to have a business bank account regardless of where you apply for finance.

A personal guarantee is used in situations where you don’t have to provide any business or personal collateral as security against a loan, often in the case of unsecured business loans and/or where you’re self-employed, operating as a limited company or part of a partnership. It’s a written – and, crucially, legally-binging – agreement that states that if your business defaults on its repayments, you as the business owner will become personally liable for the debt.

Much like in the personal lending sphere, you’ll be able to get both unsecured and secured business loans. The former allows you to borrow without putting up any assets as collateral, while the latter expects an asset to be put up as security.

Yes. Once you’ve started trading, every financial transaction you make will count towards your business’ credit worthiness, so it’s essential to make sure you keep up with all credit commitments and payment obligations to ensure lenders look favourably on you in the future.

This depends on the terms of the loan and the way your business has been set up. If you’ve got a secured loan but have had to use your own home as collateral, it could be at risk should you fail to keep up with repayments and default on your loan. The same applies if you’ve got an unsecured loan and offer a personal guarantee; in this case, if the business defaults you become personally liable for repaying the debt. However, those who secure loans against their business assets – and particularly in cases where you’re operating as a limited company, and your business interests are therefore entirely separate to your own – your personal wealth won’t be at risk.

All of the main high street banks offer business loans, so if you’d be more comfortable with a loan from a familiar provider, you’ll be able to find it. In our chart you’ll find HSBC business loans, NatWest business loans, Santander business loans, Lloyds business loans and more besides, with a lot of smaller lenders and specialist firms offering business loans as well.

Yes, but only if you’re a sole trader, or have personally guaranteed the loan in any capacity. In these cases, you’re personally liable for any debt your business accrues, which means your credit score will be impacted if any business loans aren’t repaid. Conversely, if you’ve set your business up in a limited company arrangement, the loan agreement will be entirely separate from your own finances and therefore will have no bearing on your personal credit score.

It depends on the type of finance you’re looking for. If you’re a sole trader seeking a business loan of £25,000 or below, it will usually be regulated by the Financial Conduct Authority (FCA). Most other business lending is unregulated.

Yes, though you’ll normally have to put up some form of collateral (i.e., opt for a secured business loan) instead. That said, some lenders will offer unsecured loans without requiring a guarantee, though the business will normally need to be of sufficient strength to prove creditworthiness. Rates may be higher, too, and loan amounts will typically be smaller.

Typically speaking, no. Credit checks are nearly always required for any form of business loan, so if you’re concerned that a low credit score could reduce your chances of being accepted, you’ll want to spend time working on improving things before applying. That said, there are some bad credit business loans available, so a potted credit history needn’t mark the end of your search for a loan. Just be prepared to pay higher interest rates accordingly.

Business loans are just one option for companies looking to secure finance. There are a lot of other forms of credit that you may like to consider, depending on your particular needs. These include, but aren’t limited to:

• Invoice finance/invoice factoring
• Asset finance
• Business credit cards
• Bridging loans
• Commercial mortgages