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 you'll repay the loan at and decides how much you'll pay monthly.
Check if any conditions are attached to the loan
Sometimes lenders attach additional conditions, such as a personal guarantee.
Like all loans, business loans are given based on affordability and a credit check. Lenders will look at your business's credit rating and financial stability to decide what interest rates to offer you.
More from business loans
A business loan is a type of borrowing designed for commercial organisations. A standard or personal loan would be instead aimed at an individual or couple for personal use.
Taking out a business loan is a useful way to get the money you might need to finance big changes or overcome small financial hurdles, whether that is to start a new company or grow an already established business.
Just like a personal loan, with a business loan your organisation can borrow a set amount of money, which the business would would then have to pay back to the lender with interest over a certain period of time.
You can find a variety of different types of business loan on the market, but most will fall into three main categories – secured, unsecured and peer to peer.
Unsecured business loans
For these loans, your business borrows money without using its assets, such as stock or machinery, as a 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.
Peer to peer loans
Taking out a peer to peer loan means you borrow from an individual through a P2P lending platform, rather than a bank or organisation.
With a business loan you can borrow as little as £500, or as much as £5 million and even beyond that.
Every loan company gives different limits on how much they 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 you're deciding how long you need to repay your loan, 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.
This table shows how the term affects what you pay in interest¹.
Updated 8 June 2021
|Loan term||Monthly Payment||Total interest|
Using our loan repayment calculator is a good way of finding cheap business loans available to you.
The interest rate you're offered on your business loan is based on a financial assessment of your business by the lender. They'll decide whether to offer you the business loan, and what interest rate to offer you, based on:
Your business's credit rating
The amount and term you're asking for
The age of your business
How profitable your business is
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 higher loan rates than what's advertised.
The average business loan rates on unsecured term loans in our comparison can be seen in the table on this page.
Remember that the interest rates on other kinds of business funding explained in this comparison can differ a lot. So don't forget to do your research when you're looking for the best business loan rates for you.
"Business loans are an expensive way to borrow money. But you can still get a good deal and save money if you compare loans.
"Make sure you only borrow the amount you need and apply for the type of loan that suits your circumstances."
A business loan isn't the only way of securing finance for your business. Other options 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.
You might find these six ways to get finance for your business helpful. Some of these options might be best for certain types of businesses, but if it's quick business finance you're after, a business loan might still be the best option.
You've also got the option of using a combination of several types of funding for your business. That way, you can get the most value out of each type without relying on any one source.
It stands for annual percentage rate, and 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 you choose and the lender. Some banks may require you to have their business current account before offering you a loan.
No, most loans can be applied for by a registered company director.
Yes, you can secure against your business assets, like your property, stock or machinery. Your assets will be at risk if you do not keep up your repayments.
Yes, but the type may depend on the size and finances of the business. For example, only new businesses can get government start up loans.
Yes, and it may affect whether or not your loan application will be accepted. You can find the credit score for your business on the Experian website.
It depends on the type of loan you choose, whether it is secured and if you sign a director guarantee. Always check the terms and conditions carefully.
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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