Compare business loans

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Minimum turnover is £100,000 with 1 year trading

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What is a business loan?

When you're setting up or looking to grow a business, you may need a business loan to help with the costs.

A business loan is different from a personal loan. The funds must be used for business purposes and you'll need to provide information about your business, its turnover and profit when you apply.

Business loans can be short-term or long-term, but all involve borrowing a lump sum and then paying a set amount of interest each month until the debt is paid off.

Different loans are available for different circumstances, so it helps to have a clear idea of exactly what you need the money for before you start to compare business loan options.

Types of business loans

Asset finance – This type of finance allows you to spread the cost of essential assets you need to operate, such as equipment machinery and vehicles.

Working capital loans - This is a type of short-term loan used to help with cashflow and other day-to-day running costs.

Startup loans - This type of loan is specifically for businesses under 36 months old and many providers offer them. There's also the option of a government-backed Start Up Loan, where you can borrow between £500 and £25,000 and pay it back over a period of 1 to 5 years.

Bridging loans - Most often used in property purchases and development projects, this short-term funding option can cover the costs while you wait for funds to clear from the sale of property or an asset.

Commercial mortgages – This is a long-term loan used to help fund the purchase of a business property.

Business vehicle finance - An option to finance new vehicles for your business - this helps spread out the cost and avoids the need to pay out a large amount upfront.

Peer-to-peer loans – Also known as P2P loans, this is when your business borrows money from individuals or other businesses instead of a bank.

Invoice finance - Often used to help with cashflow, this is when you use your unpaid invoices as security for funding. A lender may buy your invoices for a percentage of their total value or it can work more like an overdraft.

Business start up loans

Every business needs money to get off the ground, but it can be difficult to find funding when you’re a start-up, as lenders have no way of knowing how your business handles credit or even if it’s viable. Many providers offer startup loans that are specifically for businesses under three years old. The application process can be difficult - so it's helpful to have as much information about you and your business, including a detailed business plan, before starting an application.

There's also the option of the government-backed Start Up Loan scheme, which provides access to unsecured personal loans of between £500 and £25,000. There's no application fee, and you can repay the loan over 1 to 5 five years. The scheme also offers free support and guidance to help write your business plan. If your application is successful, you’ll also be eligible for up to 12 months of free mentoring.

How to choose a business loan?

Choosing a business loan is an important decision that requires careful consideration of various factors.

Here are some steps to help you choose the right business loan:

Identify your business' needs: Determine why you need the loan and how much capital is required. Consider the purpose of the loan, whether it's for working capital, expansion, equipment purchase, or other business needs.

Asses your business' creditworthiness: Check your credit score and credit history. Lenders often use this information to assess your creditworthiness. A higher credit score can result in better loan terms and interest rates - and many credit score agencies provide tips on how you can improve your score too.

Research loan types: Understand the different types of business loans available. Each type of loan has its own terms, repayment schedules, and interest rates so you can find the best option for the specific needs and circumstances of your business.

Compare interest rates and fees: Shop around and compare interest rates from different lenders. Consider both fixed and variable interest rates and be aware of any additional fees, such as origination fees or prepayment penalties.

Evaluate repayment terms: Understand the repayment terms, including the loan term, frequency of payments, and whether the payments are fixed or variable. Assess whether the repayment schedule aligns with your business's cash flow.

Consider loan amount and eligibility: Ensure the loan amount offered meets your business' needs. Check the eligibility criteria of different lenders to make sure you qualify for the loan.

What are the risks of taking out a business loan?

While taking out a business loan can provide essential capital for growth or operations, it also involves certain risks that business owners should be aware of. Here are some common risks associated with business loans:

Debt burden: One of the primary risks is the potential for a significant debt burden. Monthly repayments can strain cash flow, especially if the business faces unexpected challenges or a downturn in revenue.
Interest rates: Interest rates can fluctuate, especially if you have a variable-rate loan. This could lead to higher monthly payments, impacting your profitability.
Default and collateral loss: If the business is unable to make loan payments and defaults, it may result in the loss of collateral. This could include business assets, personal assets, or both, depending on the type of loan.
Impact on credit score: Defaulting on a business loan can negatively affect your credit score, making it more challenging to secure financing in the future. A lower credit score may also result in higher interest rates on future loans.
Market risks: Economic downturns or changes in the market conditions can impact your business's ability to generate revenue. This, in turn, may affect your ability to repay the loan.