A business loan is a common way for businesses to raise funding. It involves borrowing money from a lender, which is repaid over an agreed period, with interest.

Business loans in the UK come in various forms, ranging from short-term to long-term options, and can be either secured or unsecured.

Types of Business Loans

Secured Business Loans:

• Requires using an asset (e.g., property, machinery, or stocks) as collateral.

• Some lenders may accept third-party guarantees as security.

• Typically offer lower interest rates and longer repayment periods.

Unsecured Business Loans:

• No business assets are required as collateral.

• A personal guarantee may be needed, ensuring you’ll repay the loan if the business cannot.

• Usually comes with higher interest rates and shorter repayment periods.

Repayment Period

• Business loans have a fixed repayment period during which you repay the borrowed amount plus interest.

• Some lenders may charge for early repayment, though others offer loans without early repayment penalties - consider this when choosing a lender.

Interest Rate

• The interest rate reflects how risky the lender deems the loan.

• Factors affecting rates include:

  • Good credit history: You’re more likely to secure favourable rates.

  • Security provided: Using assets as collateral may lower rates.

• Interest can be:

  • Fixed: Stays the same throughout the loan term.

  • Floating: Varies with the lender’s interest rate or the Bank of England’s base rate.

Business loans in the UK are offered by various providers, including:

• High-street banks

• Challenger banks

• Community Development Finance Institutions (CDFIs)

• Peer-to-peer platforms

• Online lenders

The best provider for you will depend on your affordability and eligibility.

Your business must:

• Demonstrate affordability for loan repayments.

• Be based in the UK.

• Have no late payments or outstanding County Court Judgments (CCJs).

Both your business credit score and personal credit score will influence approval chances and interest rates. Poor scores may limit options or result in higher rates.

Questions to Ask Yourself:

1. How will I use the loan?

2. Do I have assets to secure the loan?

3. Can I afford the repayments?

4. Are there early repayment charges?

5. What is the interest rate, and is it fixed?

6. What is the loan term?

You can apply:

• Online: Directly through lender websites or eligibility checkers.

• Via a Specialist Broker: To help find the best loan options.

• In Person: At a bank branch.

Soft Credit Checks: Use online eligibility tools to gauge your chances of approval before applying. These checks don’t impact your credit score.

Documents You’ll Need:

• Proof of identity and address.

• Business financial accounts.

• Business bank statements.

• VAT returns, if applicable.

• Details of company directors and guarantors.

• Retain control: Unlike equity financing, you don’t give up business ownership.

• Flexible repayment schedules: Tailored to suit your cash flow.

• Fixed repayment rates: Predictable monthly payments for better budgeting.

• Quick access to funds: Many loans can be approved and funded swiftly.

• Charges: Late or missed payments can incur fees.

• Credit Impact: Loan applications and defaults can affect your business and personal credit scores.

• Asset Risk: Assets used as security may be repossessed if you fail to repay the loan.