The Ultimate UK Business Loans Guide
Find out what you need to know about business loans; including how they work, what they
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The Ultimate UK Business Loans Guide
Find out what you need to know about business loans; including how they work, what they can help with, and how to get one for your business.
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The Ultimate UK Business Loans Guide
Find out what you need to know about business loans; including how they work, what they can help with, and how to get one for your business.
They say money makes the world go round, and never has that been more true than when it comes to your business. Cash, dosh, wonga- whatever you call it, it’s essential to maintaining and growing your business. And what better way to tap into new funds than with a business loan?Â
But what is a business loan? How can they help you? How can you apply for a business loan?Â
Well, don’t worry about all that because you’re in the perfect place to learn all this and more with our ultimate guide to UK business loans!
What is a Business Loan?
Let’s start with a nice, easy one. A business loan is like any other type of loan you use strictly for commercial purposes. They’re extremely common, with £16 billion being lent to SMEs in 2024 alone, and often one of the first options for businesses seeking extra funds.Â
There are three main components to a business loan:Â
- The loan amount: How much money are you going to borrow?Â
- Repayment period: Over how long will the loan’s repayments be spread?
- Interest rate: How much interest will you pay on the loan?Â
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What is the Difference Between a Business Loan and a Personal Loan?
Although at their core, business loans and personal loans provide funds to their borrowers, there are a few key differences.Â
Business loans are specifically designed for business use. Typically, they offer larger amounts compared to personal loans and come with tailored repayment terms, which can help build your business credit score.
Personal loans, however, are based on your individual credit score. Although you can use them for business purposes, they may not meet your business needs. They also come with the added risk of personal liability, meaning if anything goes wrong, you’re personally on the hook.Â
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Types of Business Loans
Business loans come in all shapes and sizes, and some will be more suited to your needs than others. Below is an overview of 10 common loans available to UK businesses.
Unsecured Business Loans
Unsecured business loans mean you don’t have to put down an asset that can be used as collateral. This makes it less risky for you if you don’t repay the loan, but far more risky for the lender. Because of this, you’ll typically find that this will mean you’ll benefit from less-favourable terms like higher interest rates.Â
You’ll then pay back the loan monthly over the agreed-upon period. Often, this is 1 to 5 years, but some lenders may stretch this up to 10. Although longer periods mean lower monthly payments, you’ll actually end up paying more in the long run due to interest.Â
Depending on your provider, you may also be required to sign a personal guarantee. This means that if your business fails to keep on top of repayments, you will be personally responsible.
Secured Business Loans
Unlike an unsecured loan, a secured business loan requires you to put something up as collateral. This could be property, equipment, or inventory.Â
Now that the tables have turned, and the risk is more on you than the lender, you could have access to much better terms, like lower interest rates. Some lenders may even increase the size of the loan in relation to the value of the asset you put up. With a secured business loan, you can spread your payments over longer periods, sometimes up to 25 years.Â
If you have a history of poor credit, this could be a way to instil confidence in a lender and get access to a loan you may otherwise not have.Â
Remember, if you don’t keep up with your repayments, whatever you put down as collateral will be taken from you. Although there are a lot of great benefits to a secured loan, think very carefully about what you borrow against and the implications of missing payments or having to commit to significant payments.
Short-Term Business Loans
These may be perfect for emergencies because you can get quick cash to plug any holes. As the name suggests, though, they are for short-term use only, and repayments will need to happen quickly, often over just a few months. Because of this, most repayments will be higher, so make sure you have the funds to cover these before signing up for one.Â
Working Capital Loans
A working capital loan is similar to a short-term loan in that repayment periods are lower than normal, but they differ in their intended use. Working capital loans are used to cover cash flow issues and manage day-to-day operations.Â
Invoice Financing
Is there anything worse than waiting for an invoice to be paid? Counting down those 90 days for it to clear, when you could be putting that money to good use. What a load of nonsense.Â
With invoice financing (also known as invoice discounting), you can get paid sooner by borrowing against these unpaid invoices. Instead of waiting to be paid, your provider lends you a percentage of the invoice in advance. Then, you pay that amount back when you receive the payment, minus a pre-agreed fee.Â
So, let’s say you’ve made a sale for £100,000, and you’re waiting for that to come in. You could use this invoice to borrow £90,000 immediately, but with a fee of £5,000. So you get the £90k straight away, then when your invoice is paid, you give your lender the £90k you borrowed, plus the £5k fee, leaving you with £95k from that payment.Â
Obviously, you won’t make as much as the total invoice value due to the fees you have to pay. Depending on these fees, it may not even be worth absorbing that loss. But if you need cash quickly, and the costs aren’t too extortionate, this could be a suitable option.
You also have the option of invoice factoring. In this type of financing, your lender collects the payment from your supplier directly and repays you the remaining balance once they’ve taken their fees. Although this puts the responsibility on your provider to make sure the invoice is paid, it does mean that your customers know you’re using invoice financing, which may impact your relationship.Â
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Asset Financing
Asset financing is a type of loan designed specifically to fund the purchase of assets. These could be anything from machinery to vehicles to property to inventory. If it’s considered an asset, then this loan covers it.Â
There are two types available.
Hire Purchase
If you opt for the hire purchase option, your provider will own the assets you purchase with their loan until your final payment.Â
You will pay a deposit for the assets (usually 10%), and your lender will cover the rest. You will then pay back the loan and interest each month until it is paid off like any other loan. Once this is complete, you will own the assets outright.Â
For some, this is a great way to purchase new and used assets without having to front huge amounts of cash. Even though you don’t technically own the assets until the end of your repayment period, you can still use them as a tax benefit as they depreciate.Â
If you don’t pay back your loan, you will lose your deposit, any money you’ve paid back to your lender, and the assets you’ve purchased.Â
Lease FinancingÂ
With lease financing, your provider will purchase the asset, and then you will lease it from them for a pre-agreed monthly fee. Once the repayment period has ended, there are a few options available.Â
You may have to return the asset to your provider. They may offer you the chance to renew the lease over another pre-agreed period. Or you could purchase the assets outright and own them yourself.Â
Commercial Credit Lines
Instead of taking out an entire lump sum at once, business credit lines allow you to draw money out when needed. You will have a limit on how much you can take out, but you’re free to take it out whenever you like.Â
One of the main advantages of this is that you will only pay interest on the amount you draw out, saving you money in the long run. Repayment terms are often more flexible, and once you’ve repaid what you owe, in many cases, you’ll be able to borrow up to your credit limit again.Â
If you need money but are unsure how much you need, commercial lines of credit could be a beneficial solution.Â
Start-Up Loans
Start-up loans are government-backed incentives to help newer businesses get off the ground. They can range between £500 and £25,000 and come with free mentoring and business plans.Â
There are a few criteria you need to meet to be eligible for a start-up loan, however:Â
- You must be 18 years oldÂ
- You must be a UK resident.Â
- Have a business that has been trading for less than 36 months (or a business plan if you have not started yet).
- UK-based and registered.Â
Commercial Mortgage
Commercial mortgages are, yep, you guessed it, mortgages designed for commercial use. This could be to purchase a new property or develop your current premises. Then, like a regular mortgage, you’ll repay the amount plus the agreed interest rate.Â
Peer-to-Peer Loans
With peer-to-peer lending, you borrow money from an individual, a group of investors, or another business instead of a bank or financial institution.Â
You’ll have to go through a peer-lending platform to access this type of funding. You enter your information, including turnover, profits, trading history, and the amount you want to borrow. Then, the platform will match you with suitable lenders.
Although most platforms are regulated by the Financial Conduct Authority (FCA), it is always important to do your own research to ensure this.
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Benefits of Business Loans
Fund Your Growth
Growth is an important part of any business. If you can fund it purely through profits, that’s great! But sometimes, you need a cash injection to help make those ambitions a reality.Â
Whether you’re expanding your operations, launching a new product, buying inventory, upgrading stock, or purchasing real estate, you’re covered. With a business loan, you can look to grow, stay competitive, and adapt to market changes.
Improved Cash Flow
Cash flow is essential for your day-to-day operations, and business loans could be a great way to keep yours healthy. They offer a buffer during slower periods (like seasonal fluctuations), delayed client payments, or unexpected expenses. This gives you peace of mind, knowing that you have a stable cash flow and can focus on the bigger picture instead of being bogged down by short-term financial challenges.Â
Maintaining Ownership
Seeking outside funding from potential investors will come at the risk of losing partial ownership of your business. This can hamper your decision-making ability and mean less money in your pocket overall. In most cases, business loans allow you to maintain complete control over your operations while benefiting from the influx of cash.
Improved Credit Rating
Taking out and repaying a business loan on time could be a great way to improve your commercial credit score. The stronger your rating, the easier it may be to secure future financing at more favourable rates. Remember, your reputation is everything when it comes to your business, and your credit score is a massive part of that.
Debt Consolidation*
It’s not unusual for businesses to have multiple debts, but juggling them can be a bit of a nightmare, especially if they come out at different times of the month.Â
You might even find that the interest rate on this loan is lower than your original payments, freeing up some cash to invest elsewhere.
Government-Backed Loan Schemes
The UK government supports small and medium-sized businesses through schemes like the Recovery Loan Scheme (RLS) and the Growth Guarantee Scheme (GGS). Both schemes provide government-backed guarantees covering 70% of the loans to your lender, making it easier for SMEs to access finance for legitimate purposes such as working capital or investment, even if you struggle to meet traditional lending criteria.Â
The GGS, launched in July 2024, continues this support with loans of up to £2 million per business, helping thousands of SMEs invest and grow across the UK.
Startup Support
Another UK government initiative, the Start Up Loans scheme, is specifically designed to help new businesses. The scheme offers a loan between £500 and £25,000 at fixed interest rates with no application fee. But the icing on the cake is the support.Â
You’ll also benefit from free mentoring programmes and business plans to help you survive and thrive in a competitive marketplace.
Flexible Options
Business loans come in all shapes and sizes and can be tailored to meet your needs. The multiple options available allow you to make the right choice for your specific needs, so they can align with your goals and manage your repayments comfortably.
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What Can a Business Loan Help With?
Buying new inventory
Whether you’re looking to purchase new stock/equipment or upgrade what you already have, business loans could offer the capital to make this happen.
Hiring new employee
If you’re looking to expand and require new team members to enable that growth, a business loan could help. The cash injection could help cover the costs of increasing your workforce, including salaries, training, and onboarding expenses.Â
Moving to new premises
When you outgrow your current location, a business loan could be the perfect way to fund your move. They could help cover relocation costs, renovations, or the purchase of a new property. There are even dedicated business mortgage loans that are specifically designed for this.
Buying another business
If you’re looking to merge with or absorb another company, sourcing capital from a business loan could be a great way to facilitate this.Â
Consolidating debt
Multiple debts can be challenging to track, especially if they come out at different times of the month. A loan to consolidate these debts into a consolidated payment plan could help streamline your outgoings. This type of loan may have a lower interest rate, helping you save on payments.*
Marketing
Marketing is essential to finding new customers and establishing yourself in the wider world. But it doesn’t come cheap. Whether you’re recruiting new staff internally, using freelancers, or hiring a marketing agency to do it for you, a business loan could help cover these costs.
Boosting cash flow
During slower periods, seasonal fluctuations, or an unexpected hit to your funds, your cash flow can be impacted. Business loans could provide a buffer in these periods or help to replenish lost funds to maintain your operations and meet any financial demands.Â
Market expansion
Whether you’re looking to launch a new product line or enter new markets altogether, a business loan could help make your ambitions a reality.Â
Managing day-to-day running costs
This may seem like a fairly obvious one, but even maintaining your operations costs money. If you need a little boost to keep things ticking over as they should, a business loan may be an option.
How to Choose the Right Business Loan Provider
Loan Terms and Amounts
This may be obvious, but determine how much you want to borrow. If you’ve calculated that you need £100,000, but your preferred lender only offers you £80,000, you’ll have to look elsewhere. Finding a lender that can match your ambition is essential.Â
Also, consider the repayment terms and whether you can keep up with them. The longer you spread your repayments over, the lower your monthly repayments will be. This sounds like a no-brainer until you consider that, in the long run, it will actually cost you more money due to paying more on interest.Â
On the flip side, a shorter period allows you to clear the debt quicker and save on interest payments. However, this will come at the cost of higher monthly repayments. If you’re unable to keep up with your repayments, you could end up in legal trouble, and if you have an asset down as collateral, you run the risk of losing it.Â
It’s all about finding the balance and what works for you.
Interest Rates and FeesÂ
Speaking of interest rates, this is another thing you need to consider. Interest (APR) is what lenders charge you for allowing you to borrow in the first place. Well, they have to make money somehow.Â
If the interest rate is fixed, this means that whatever the rate is on the day you signed up for the loan, it will remain that throughout your repayment period. If you choose a variable rate, then it will fluctuate based on the Bank of England’s base rate. Sometimes, this will benefit you when the rate drops, but if it rises, you’ll end up spending more on interest payments.Â
Secured or Unsecured
With a secured business loan, you put an asset down as collateral. This means if you don’t keep up with your payments, then your lender can repossess this asset to cover their lost income. Because you’re taking on a higher risk here, you will often benefit from lower interest rates and more favourable terms.Â
Unsecured business loans mean you don’t put up an asset to borrow against. Now, the lender is taking on a higher risk and needs to make lending to you worthwhile. So you can expect less favourable fees.
Eligibility Criteria and Application Process
Some providers will have more stringent eligibility criteria than others. For example, some may not lend to you if you have a poor credit history. While others will be happy to lend to you, it will often come with more stipulations and less favourable fees.Â
Typically, you must meet the lender’s requirements for credit score, business financials, time in operation, current status, and personal creditworthiness.
You’ll also need to consider the ease and speed of the application process, as well as the documentation required. You’ll typically need to provide business plans and financial statements. Some lenders offer online applications for quicker processing, particularly on peer-to-peer platforms.
Loan Purpose
What do you need the loan for? If you’re looking at purchasing or upgrading a commercial property, a business mortgage may be more suitable than a more traditional loan. If you need quick cash, a short-term loan is perfect.Â
Understanding why you want to borrow money beyond “I want more money” is a key step to choosing the correct loan.Â
Reputation and Customer Service
So you’ve found the lender for you. They match your borrowing amount, offer great interest rates, and offer fair repayment terms. But then you check out their Trustpilot page, and now everything doesn’t seem so rosy with their 1.4 rating.Â
Now, one or two bad reviews are expected. But if you see the same comments (good and bad) popping up from customers, these must be taken very seriously. Trustpilot and Google reviews should always be a port of call, and then following that up with your own extra research before making a final decision.Â
How Can I Get a Business Loan?
If you’re looking to get a loan for your business, you may be in the right place! Here at Commercial Experts, we’ve made it our mission to help UK businesses like yours find a suitable loan provider for them.Â
All you have to do is tap the button below and answer a few quick questions about your business. Then, based on the information you enter on the application form, if you meet the criteria of one of the partners on our panel, they will contact you to discuss your application further.Â
This is a completely free service with no strings attached. Don’t like what you see? No worries, walk away without spending a penny.Â
So, want to find out more? Tap below to explore your options further!Â
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FAQs
What is a business loan, and how does it work?
A business loan is funding borrowed specifically for business use. You repay it over time with interest, helping cover costs like equipment, staff, or expansion. Loan terms, interest rates, and eligibility depend on your business’s creditworthiness and financial situation.
What are the different types of business loans?
There are various options, including secured, unsecured, short-term, asset finance, invoice finance, and commercial mortgages. Each serves different needs—some offer flexibility, and others are suited for asset purchases, cash flow support, or larger long-term investments.
Can a business loan help improve cash flow?
Yes, business loans can provide short-term working capital during quiet periods, client payment delays, or seasonal dips. This helps keep operations running smoothly without disrupting payroll, stock, or services while you wait for revenue to pick up.
What can I use a business loan for?
You can use a business loan to buy equipment or inventory, cover marketing costs, move premises, expand into new markets, or consolidate* existing debt. They’re flexible tools to support both daily operations and long-term growth.
How can I get a business loan?
Just tap the button on this page, answer a few quick questions, and see if you could be eligible for a business loan. It’s no obligation, so when you explore options, you only commit if you’re happy!
*IF YOU ARE THINKING OF CONSOLIDATING EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY
