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Last updated
June 20th, 2024

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 to these, 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 and financial forecasts - the better your chance of approval.

It will also help if you have relevant documentation to hand too, such as statements and a balance sheet if applicable.

It’s important to check the specific terms and conditions for each loan to make sure your business fits the criteria.

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What is a business loan?

A business loan is much like a personal loan. You complete an application for 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. But you might decide you need a loan to:

  • take control of your business' cash flow

  • pay for stock or equipment

  • expand your business

  • launch 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 businesses purchase, or hire, assets such as equipment, vehicles, or machinery through instalments without investing large amounts of capital up front. The finance your borrow is 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

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 businesses purchase, or hire, assets such as equipment, vehicles, or machinery through instalments without investing large amounts of capital up front. The finance your borrow is 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.

The Recovery Loan Scheme was a vital lifeline for many businesses in the wake of COVID-19. With the scheme now extended and renamed to the Growth Guarantee Scheme, it means more small businesses can seek help with the ongoing rise in costs and associated 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 secure a business loan.

These 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 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.

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.
Business loans can help get your business idea off the ground or grow your business if you're more established. You can avoid what can be a difficult application process by preparing the relevant information and checking your eligibility in advance.

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 the 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.

Crowdfunding

Crowdfunding is when you pitch your business idea online and offer perks or rewards 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.

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 the 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.

Crowdfunding

Crowdfunding is when you pitch your business idea online and offer perks or rewards 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.

FAQs

Do I need a business account for a business loan?

In terms of whether you need a business account for a business loan, 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.

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 new businesses can get government start-up loans.

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 on the Experian website.

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.

About the author

Kyle Eaton
Kyle joined the money.co.uk team in 2023 and has a long history both of writing and working in financial services and with small businesses.

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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.