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Your Business Loan Questions Answered

We've put together a list of your most common questions about business loans. All you want to know, right here on this page.

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What Is a Business Loan?

At some point, every business needs a bit of extra cash in the bank. What better way to fund this than with a business loan? 

Have a read of the business loan questions we come across the most to find out everything you need to know about how they work, what types are available, and how to get one for your business. 

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What is a Business Loan?

A business loan is like any other loan, but one that is used specifically for business-related purposes. It's often one of the first things businesses consider when they want to raise capital. 

Loans can be taken out to pay for exciting expansion plans, to buy new stock or specialised equipment, or to help your cash flow. 

Whatever your needs, a business loan could help. 

Can I get a loan for a new business?

Yes. Many small businesses apply for a loan every year, with lenders offering several different types of ways to borrow money. Different lenders offer different rates of interest to different businesses in different industries; each of these factors influences the kind of deal you'll be offered. It's important to check what kind of deal you can get, so comparing providers is a good place to start. 

The UK Government also offers small businesses a loan scheme, which you can read more about further down this page. 

How do I apply for a business loan?

Applying for a business loan is relatively simple; you just need to find the right provider with the right deal and fill in a form (often this is done online). After the application is sent, your chosen lender will assess it and get in touch with you usually in a few days.  

Before you actually apply for a business loan, however, there are some steps you should take. These steps include checking your business credit report, making sure your finances are in order, and carefully planning how much you want to borrow and how you're going to pay it back. 

Are business loans tax deductible?

No. Payments for business loans do not qualify for tax deductions. When a business takes out a loan, the received amount is not considered taxable income, this means repaying the loan's principal does not permit a deduction. 

There is still potential for certain deductions, however. In the majority of scenarios, the interest paid on a business loan is eligible for a tax deduction. The interest part of your loan can often be written off as a business expense.  

Does a business loan affect your credit score?

Yes. Opting for a business loan has the potential to impact your personal credit score. As time progresses, your business may accumulate liabilities that stem from your loan. Things like overdrafts, credit lines, and business credit cards can cause this. If you are the individual who took out the loan, it's likely that you bear the responsibility for repaying it.

It's really important that you assess your means of repaying any loan that you take out, as it could have a negative impact on your credit score, and therefore your ability to borrow money in the future. As a general rule, you should only ever borrow an amount that you are sure you can pay back. 

What are the risks of business loans?

Excessive business loan debt could potentially lead to a decline in your personal or business credit score, especially if consistent repayments cannot be upheld. Accumulation debt increases the risk of your business becoming financially strained, which heightens the likelihood of overlooking payments or facing defaults. 

These scenarios are obviously bad for your business and need to be avoided. This is why the risks need to be assessed properly before you decide to take out a loan. Accumulating debt is never advisable and you should have a robust repayment plan in place to ensure you don't fall behind on payments.     

Can you get a business loan on bad credit?

Yes. You can get a business loan with a poor credit score. The process for doing so is slightly different from if you had a healthier score, but the possibility of getting one remains.  It mainly rests on the strength of your business plan and your capacity to substantiate the stability of your cash flow. 

Should your business be inclined to provide business assets as collateral, a secured business loan could be something to consider. Banks basically want to be sure that they can recoup any investment they make, so offering up your business assets can be a good incentive for them to view you as a viable borrower. 

What are the main benefits of a business loan?

Entrepreneurs have the option to request various loan types (ranging from long-term to short-term) depending on their specific needs. The most obvious benefit to a business loan is the ability it gives your business to expand financially. 

Applicants are also not obligated to present collateral when seeking a business loan and the process for acquiring a business loan is often straightforward, which are two of the other benefits to taking out a loan. 

How much can you borrow with a business loan?

It depends on the type of loan you want. If you're a new business and apply for a Government Start Up Loan you can borrow from £500 to £25,000. In this case, the loan is categorised as personal rather than strictly a business loan. 

As a result, in cases where a business comprises multiple partners, each partner has the opportunity to individually seek a loan amount of up to £25,000. It's important to highlight that the highest sum attainable for a single business entity is £100,000.

Can you take out more than one business loan?

Yes, a business is able to take out more than one loan.  Your business may want to do this to cover an emergency cost, or to ensure the continuity of your trading in the short term. 

As always, it's important to make sure you can pay back any money you borrow, and take the time to assess the risks associated with accumulating debt. 

Are business loans fixed or variable?

Both. Business loans are typically categorised into two main types of interest rates: fixed and variable. A fixed-rate involves a predetermined interest rate that remains constant throughout the entirety of the loan's lifespan. 

Fixed-rate loans provide borrowers with a sense of stability and predictability in their repayment plan, as the interest costs remain unaffected by fluctuations in financial markets. This can be particularly advantageous when crafting a budget and ensuring financial consistency over the long term. 

Does the UK Government offer business loans?

As well as having schemes in place to help businesses find a loan, the UK Government also provides loans to businesses themselves. The Start-Up loan scheme is popular amongst small businesses in the UK. 

Unlike a traditional business loan, the Start-Up loan is a personal loan to be used for business needs, ranging from £500 to £25,000. Read more about the Start-Up loan scheme

Are business loans secured?

Sometimes, yes. Business loans are commonly secured by assets such as property, equipment, machinery, or land. Any valuable assets possessed by either you or your business can also be considered collateral.  

Sometimes a business loan can be unsecured, which means there are no assets or property offered as collateral. The type of loan you take out will determine this. There are advantages to both unsecured and secured loans and it's important to know how each of them is likely to work for you.

Get Your Business Loan Today

Now that you know everything about business loans, there's just one thing left to do, get one for your business! 

All you have to do is answer some basic questions about your business, and using this information, we will find the most suitable loan provider for your business. 

It's only one click away!

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