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Decide how much you want to borrow
This is the amount of money you need to borrow to fund a business priority.
Work out long you need to repay the loan
This is the length of time you need to pay back the loan with interest.
Find the type of business loan you need
It's important to know which type of loan is best suited for your business.
Calculate the interest rate or APR
This is the rate at which you'll reimburse the loan and dictates the monthly repayment.
Check if any conditions are attached to the loan
Sometimes lenders attach additional criteria, such as a personal guarantee.
A business loan is a credit arrangement designed for commercial organisations.
Taking out a business loan is a useful way to get money to finance big changes or overcome small financial hurdles. You can also use a business loan to start a new company as well as grow an already established business.
A business loan enables your organisation to borrow a set amount of money, which the business has to pay back to the lender with interest over a certain period of time. In that sense, it functions in the same way as a personal loan.
You can find a variety of different types of business loans on the market, but the majority fall into three categories: secured, unsecured and peer-to-peer.
There are a number of different finance options to consider:
Unsecured business loans
For these loans, your business borrows money without using its assets – such as real estate, stock or machinery – as security.
Secured business loans
With these loans, the business borrows money using one of its assets – such as property or shares – as security for the lender.
Taking out a peer-to-peer loan means you borrow from an individual, rather than a bank or organisation, through a P2P lending platform.
This type of business finance allows you to borrow against the value of any assets in your business. This includes machinery, IT equipment and even fixtures and fittings. Asset-leasing agreements can also be used to finance new equipment.
These work like residential mortgages but can only be used for commercial property, including any type of building or land you want to buy as an investment. These loans are available for up to 75% of the property's value and the interest paid on the mortgage is tax-deductible.
Bridging loans are used to cover a shortfall in funding, usually when buying a commercial property or refurbishing an existing one. This type of loan usually has a shorter repayment term and higher interest rates and fees than other types of business loans.
With a business loan, you can borrow sums from £500 to £5 million or more.
Every loan company has different limits on how much it will lend. So if you want to borrow a large amount, your choices for a lender might be limited.
Business loans can have a short repayment period like a month or a longer term such as 30 years.
When deciding how long you need to repay your loan, you need to be realistic about what you can afford to pay each month.
The longer your loan term, the lower your monthly payments will be, but you'll pay more in interest overall.
Our loan repayment calculator can help you determine how long you need to repay your loan based on how much you can afford to pay every month.
This table shows how the term affects what you pay in interest¹.
|Loan amount||Loan term||Monthly Payment||Total interest|
Once you apply for a loan, the lender assesses your business finances and decides whether to offer you a loan and what the interest rate should be. Its assessment includes your business's:
If the lender thinks your business loan is low risk, you'll be offered a lower interest rate. If they think your loan is high risk, you'll be offered a higher interest rate.
The advertised APR that you see before you apply is the rate offered to at least 51% of applicants. That means almost half of those offered that business loan might be offered a higher loan rate than the one advertised.
The comparison table above shows the average business loan rates for unsecured term loans.
It's important to check different types of business funding before making a decision because interest rates can differ significantly.
Business loans can be an expensive way to borrow money. But you can still get a good deal and save money if you compare business loans. Make sure you only borrow the amount you need and apply for the type of loan that suits your business.”Salman Haqqi, Personal Finance Editor
A business loan isn't the only way of securing finance for your business. Other options you could try include:
Some business credit cards come with deals for 0% interest on purchases for a set period. Others offer rewards like air miles or cashback. A business credit card is good for day-to-day transactions and expenses, plus several members of staff can have a card. But remember that they're not great for long-term borrowing. Most charge a high interest rate once the introduction period ends. Find out more about business credit cards here.
These are offered over weeks or months, and go up to £200,000. They have higher interest rates than other types of borrowing.
These are when you borrow money against your business's future debt or credit card sales. They come with set fees rather than an interest rate.
This is when you pitch your business idea online and offer perks or rewards to investors if your target's met. It's sometimes called donation or reward crowdfunding. Crowdfunding can be a good alternative to start-up business loans for new business ventures. But remember getting the amount you need can be a slow process. Find out more about how crowdfunding works.
These are designed to help new businesses. They can also help businesses in certain sectors, or businesses in specific areas of the UK. The good thing about grants is that you don't have to pay the money back, and you keep full ownership of your business. Each grant has different criteria, so the finance isn't always guaranteed. Search for business grants in your area.
For quick business finance, a business loan may be the best option, but these six ways to get finance for your business extend your options – although some tend to work better for some businesses than others. You could also consider combining several types of funding. That way, you can get the most value out of each type without relying too heavily on any one source.
Before deciding to take out a business loan it's important to weigh up the advantages and disadvantages to make sure it's the right form of credit for your circumstances.
On the positive side, business loans can:
help provide funding for expansion plans
be used to overcome temporary cashflow problems
offer capital for startup companies
There are also drawbacks to business loans, including:
Tough eligibility criteria
Repayments that eat into cash flow
High interest rates for businesses with a poor credit history
APR stands for annual percentage rate. It is the interest you pay on the total value of your loan. The lower your APR, the lower your monthly payments.
It depends on the loan and lender. Some banks may insist that you have a business current account with them before they will accept you for a loan.
No, registered company directors can apply for most business loans.
Yes, you can get a secured business loan by using company assets – including property, stock and machinery – as collateral. It's important to remember that these assets will be at risk if you do not keep up repayments on the loan.
Yes, small businesses can get loans, but you may be offered different ones depending on your firm's size and revenue. For instance, only new businesses can get government start-up loans.
Possibly. It all depends on the type of loan you choose, whether it is secured against your home and if you sign a director guarantee. Always check the terms and conditions carefully before agreeing to any loan.
Comparing business loans could save you money. Our multiple award-winning comparison service makes sure you get the lowest rates possible based on your individual circumstances. Our aim is to provide you with the most up-to-date information, as well as useful tools and calculators so to help you make life's most important decisions and take control of your money.
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