A secured business loan means you need to provide assets as security to cover the amount being borrowed. Assets can include property or company shares.
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Who is eligible for a business loan?
Specific eligibility requirements will vary depending on the loan provider you choose.
However there are some general eligibility requirements. You'll need to be:
18 or over
A UK resident with a UK registered business
Able to pass relevant credit checks
In addition, most business loan providers will want to look at your business plan. The more detailed your plan is — with your business objectives, business type, strategy, market analysis and financial forecasts — the better your chance of approval.
It may also save time during the application process if you have relevant financial documentation, such as statements and a balance sheet if applicable, to hand.
It’s important to check the specific terms and conditions for each loan to make sure your business fits the lender's criteria.
To find out more, read our guide on business loan eligibility criteria.
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What is a business loan?
A business loan is much like a personal loan. You complete an application to borrow a specific sum of money and you pay it back, with interest, over a defined period of time.
Unlike with a personal loan, a business loan must be used for business purposes, for which there are many. For example, you might decide you want a loan to:
Take control of your business's cash flow
Pay for stock or equipment
Launch your business
Grow your business
Pay off other debt
Launch a marketing campaign
Business loans are a versatile and common form of borrowing for small businesses, though depending on the type of loan, the application process can be complex.
Types of business loans available
Secured business loan
A secured business loan means you need to provide assets as security to cover the amount being borrowed. Assets can include property or company shares.
Startup business loan
A startup loan works in the same way as a business loan but is specifically for funding a new business or one that has been trading for less than 36 months.
Business vehicle finance
Business vehicle finance helps you borrow money to purchase new vehicles for your company, turning what would be an up-front cost into a monthly cost.
Invoice finance
Invoice finance helps your business maintain a healthy cash flow, allowing you to access money which is owed by your customers without waiting for the payment to arrive.
Asset finance
Asset financing allows your business to purchase, or hire, assets such as equipment, vehicles, or machinery. You pay for the asset through instalments without investing large amounts of cash up front. The finance your borrow is often secured against the asset itself.
Unsecured business loan
A loan of this type makes it possible for your business to borrow money without having to offer any assets (including real estate) as security.
Government backed Start Up Loan Scheme
The Start Up Loan scheme from the government aims to help small businesses via a loan of £500 to £25,000. You can repay the loan over a period of one to five years on a fixed interest rate of 6% per year and there’s no application fee.
The Growth Guarantee Scheme
Formerly the Recovery Loan Scheme, the Growth Guarantee Scheme comes with the same terms. It allows lenders to provide loans that are partially government backed to struggling businesses. If your business meets the relevant criteria you could borrow between £25,001 and £2m in the UK to help with rising cost pressures.
Types of business loans available
Secured business loan
Startup business loan
A startup loan works in the same way as a business loan but is specifically for funding a new business or one that has been trading for less than 36 months.
Business vehicle finance
Business vehicle finance helps you borrow money to purchase new vehicles for your company, turning what would be an up-front cost into a monthly cost.
Invoice finance
Invoice finance helps your business maintain a healthy cash flow, allowing you to access money which is owed by your customers without waiting for the payment to arrive.
Asset finance
Asset financing allows your business to purchase, or hire, assets such as equipment, vehicles, or machinery. You pay for the asset through instalments without investing large amounts of cash up front. The finance your borrow is often secured against the asset itself.
Unsecured business loan
A loan of this type makes it possible for your business to borrow money without having to offer any assets (including real estate) as security.
Government backed Start Up Loan Scheme
The Start Up Loan scheme from the government aims to help small businesses via a loan of £500 to £25,000. You can repay the loan over a period of one to five years on a fixed interest rate of 6% per year and there’s no application fee.
The Growth Guarantee Scheme
Formerly the Recovery Loan Scheme, the Growth Guarantee Scheme comes with the same terms. It allows lenders to provide loans that are partially government backed to struggling businesses. If your business meets the relevant criteria you could borrow between £25,001 and £2m in the UK to help with rising cost pressures.
Risks to be aware of
Business loans can help in a variety of ways, but as with any form of credit, there are risks.
Credit score
If you keep up to date with repayments then a business loan can be a great thing for your business' credit score. But if you fail to keep up and miss repayments then it can negatively impact your credit file - making it difficult to obtain credit.
Approval
The application process and eligibility criteria can be strict, so to better your approval chances it's important to have your documents in order and check you're eligible in advance.
Interest rates
All loans come with an interest rate and business loans are no different. If you have poor credit, or your business is new with no credit history, then those interest rates could be higher.
Cash flow
Depending on the size and term of the loan, repaying it could take many years. This over time could eat into your business's cash flow so it's important to make sure you're comfortable with the loan terms.
What do you need to apply for a business loan?
You will need a variety of documents to get a business loan.
These might include financial statements, personal tax returns, business tax returns, business bank statements and company director proof of address and IDs.
Average amount of repayments made each month across 2023[1]
£2.1bn
If you would like a loan for your business then the first step is applying for one with a suitable lender. You’ll need to tell them what it’s for and illustrate your current financial situation so that they can see how you’ll repay the loan.
During the application process you’ll also need to decide how long it’ll take to repay. This can range from one year to 30 years, depending on whether you choose a short, medium or long-term loan.
The longer your loan term, the lower your monthly payments will be but the more you'll pay 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.
How to apply for a business loan
Before choosing your business loan, consider the following steps:
Research the type of loan you need
It’s important to know which type of loan is best suited for your business, so always explore the options available to you before making a decision.
Decide how much you would like to borrow
You’ll need to work out how much money you need to ensure the loan can fund your business’ goals. It’s also essential to know how long you’ll need to repay the loan.
Check any conditions attached to the loan
Lenders will have different criteria depending on the loan, so make sure that you can adhere to the conditions and repay the money when needed.
Apply for a business loan
Once you’ve followed these steps you’ll be ready to fill out an application with your financial details.
Other business finance options
Credit cards
A business credit card is good for day-to-day transactions and expenses, plus several members of staff can have a card. They might not be a great option for long-term borrowing though as many charge a high interest rate once any introduction period ends.
Invoice financing
Invoice finance can help you maintain a healthy cash flow for your business. It allows your business to access any money you're owed by customers without waiting for the payment to arrive. Invoice financing can really help if your business struggles with cash flow, or if you're looking to seize new opportunities for growth.
Government grants
Government grants 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.
Bank loans
These are offered by banks and building societies and can be up to £250,000 over one to 15 years. They're usually unsecured loans and can be a helpful way to raise funds that you can repay over a longer period of time. As they're personal loans, you should check the lender permits the loan to be used for business purposes.
Crowdfunding
Crowdfunding is when you pitch your business idea online and offer perks, rewards or equity to investors if your target is met. It can be a good alternative to startup business loans for new business ventures as there's less risk to your credit score and you typically don't need to repay the funding you've raised as you would with a loan.
Other business finance options
Credit cards
A business credit card is good for day-to-day transactions and expenses, plus several members of staff can have a card. They might not be a great option for long-term borrowing though as many charge a high interest rate once any introduction period ends.
Invoice financing
Invoice finance can help you maintain a healthy cash flow for your business. It allows your business to access any money you're owed by customers without waiting for the payment to arrive. Invoice financing can really help if your business struggles with cash flow, or if you're looking to seize new opportunities for growth.
Government grants
Government grants 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.
Bank loans
These are offered by banks and building societies and can be up to £250,000 over one to 15 years. They're usually unsecured loans and can be a helpful way to raise funds that you can repay over a longer period of time. As they're personal loans, you should check the lender permits the loan to be used for business purposes.
Crowdfunding
Crowdfunding is when you pitch your business idea online and offer perks, rewards or equity to investors if your target is met. It can be a good alternative to startup business loans for new business ventures as there's less risk to your credit score and you typically don't need to repay the funding you've raised as you would with a loan.
FAQs
Do I need a business account for a business loan?
Whether you need a business account for a business loan depends on the lender and the type of loan. Some banks may require you to have a business current account with them before they approve your loan application. However, certain loan programs, such as the government-backed Start Up Loan, may allow the loan to be deposited directly into your personal bank account instead. Always check the specific requirements of your lender to understand their policy on business accounts.
Do I need to be the owner of a company to get a loan?
No, you don't need to be the owner of a company to get a loan. Registered company directors can apply for most business loans.
Can my small business get a 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 businesses that are less than three years old can get a government Start Up Loan.
Does my business have a credit record?
Yes, your business does have a credit record and it may affect whether or not your loan application will be accepted. You can find the credit score for your business through credit referencing agencies such as Experian.
Could I lose my home if my business defaults?
You could lose your home if your business defaults. 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.
How long does it take to be approved?
The length of time to be approved for a business loan depends on the provider, the checks they carry out, the information they need to see and how quickly you're able to provide it. It also depends on the type of loan. For example, secured loans can have longer approval times.
Is it possible to pause payments when the loan account is open?
Yes, it may be possible to pause payments on your loan account if you're facing financial difficulty. Some lenders offer a payment holiday, which allows you to temporarily pause your repayments for a set period. To request a payment holiday, contact your loan provider as soon as you experience financial hardship.
It's important to communicate early to explore your options and avoid any penalties or missed payments. Always check your loan terms to understand the conditions and eligibility for a payment holiday.
Can I get a business loan if I have bad credit?
Yes, it is possible to get a business loan with bad credit, but it can be more challenging. Lenders typically look at your business’s financial health, cash flow, and overall stability, rather than just your personal credit score. However, you may face higher interest rates or stricter terms if you have bad credit.
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References
1. Stats according to UK Finance Repayments have been stable across 2023 to date as SMEs continue to meet repayment obligations.