Business loans UK

Whether you're starting a new enterprise or looking to grow, purchase necessary equipment or finance working capital needs, a business loan could be what you need to secure that added investment. Here's all you need to know about the various types of business loans to help ensure you get the right finance for your company.

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Business loans UK

What is a business loan?

In general terms, a business loan is a sum of money issued to a business owner exclusively for use in their business and is repaid—with interest—over a set period. The distinction between a business loan and a personal loan is that a business loan is used for buying things like stock, plant & machinery, and equipment. In contrast, a personal loan is mainly used for buying things like cars and home improvements for private use.

Understanding how business loans work can help you find the right financing for your company, which can be a lifeline when used responsibly. Typically, a business loan can range from £1,000 to several million, with terms varying from a one-month repayment to 15 years.

How much can I borrow with a small business loan?

Depending on how much you need, you could be eligible for funding of anywhere between £1,000 and £15M. Though how much you can borrow will also vary from lender to lender.

Use our business loan calculator below to determine how much you can borrow to take your business to the next level. We break down funding barriers with a simple application process that empowers you. 

All of our partner lenders are registered with the financial ombudsman service or trade as public limited companies (bank plc). Through our technology, Funding Cloud(™) we can accurately validate your business profile, matching you to the industry’s most significant lender network. 

Business Loan Calculator

What type of business loan would suit my business?

Capital is the lifeblood of any business, new or old. And, with the cost of doing business in the UK higher than ever, shrewd business owners will need to weigh up their options before applying for a business loan. In principle, the approach is straightforward. First, you check what types of loans are available. Second, compare rates, along with terms and conditions. After some initial research, you can begin to contact different providers to see what's possible. Often for SMEs talking to someone directly or through a lending platform, such as Funding Cloud(™), is the quickest way to discover the best deals for their business.

Types of business loan

Generally speaking, there are four main types of business loans. The right option will depend on your demonstrable trading history, balance sheet assets, and cash flow position. 

Unsecured business loans

When it comes to unsecured loans, you won't need to offer any security.

This is an attractive option for asset-light businesses. Also, companies growing fast and needing access to growth capital will be drawn to unsecured loans.

The market is competitive now so business owners can get great deals. Unsecured loans of up to £250,000 can help with everything from working capital to business expansion. It's important to note that lenders almost always ask for a personal guarantee.

Benefits of an unsecured business loan

Business loans that are not secured have numerous benefits. Some of these advantages include the following:

  • More straightforward than secured loans

  • Access to growth capital for your business

  • Faster to get funding 

  • Manage market uncertainty

  • Purchase items without delay

  • Cover unexpected bills

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

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Secured business loans

Businesses operating in asset-heavy industries with a demonstrable trading history might be more inclined to get a secured business loan. Sometimes this type of loan is referred to as asset-backed lending. This form of business lending requires a business owner to provide assets such as property, plant, and machinery as security. With investments the business offers, the risk to the lender is significantly reduced, which means lower interest rates and better repayment terms. Borrowers, as a result, are in a better position to repay the loan over the long term. 

Business owners who decide to go for a secured loan will usually not need to provide a personal guarantee

Benefits of a secured business loan

  • More flexibility for SMEs

  • Less stringent credit scores

  • Ideal for short-term financing

  • Fixed interest rates

  • Early repayment is possible

  • Often cheaper than unsecured loans

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Working capital finance

The third type of loan on offer is a working capital loan. This might suit businesses with short-term expenses from wages to stock and rent. This source of funding is often for less than 12 months. As a business owner, it is recommended that you try to find a lender that offers a tailored Annual Percentage Rate (APR). Once you have the estimated repayment terms, you can easily compare and contrast the competing rates.

Benefits of working capital loans

  • No collateral covered

  • Better cash flow 

  • Purchase flexibility 

  • The quick loan application process

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Short-term business loans

Businesses often experience Adhoc payment demands or unexpected growth opportunities that require immediate cash. To access this cash, a business owner might consider revolving credit facilities. This form of borrowing is well suited to situations where money is needed for three months up to two years.

At Funding Options, we have seen many eligible borrowers get a loan approval in as little as 20 seconds. 

Bear in mind that short-term business loans can have higher fixed interest rates.

Benefits of short-term business loans

  • Less interest payable

  • More freedom to seize unexpected business opportunities

  • Increased speed of approvals

  • Funds are available without delays

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

Can I get a business loan with bad credit?

Credit rating is one of the most valuable indicators of what interest rate you'll pay for a business loan. Risk is partly determined by the term length and the security you can provide. The official interest rate for the United Kingdom is called Bank Rate, set yearly by the Bank of England which keeps a close watch on the financial system, so you can have confidence that whatever rate a lender offers you will be transparent and consistently priced.

A less favourable credit score will not jeopardise your chances of getting a business loan. Specific lenders specialise in bad credit business loans, including secured business, guarantor, high-interest, and unsecured loans. In addition, businesses that need capital can also avail of merchant cash advances, asset finance and invoice finance.

What are merchant cash advances?

Without a positive credit score, business owners still have an opportunity to get funding through alternative financing. One type of alternative financing that works well for businesses that accept debit and credit card payments from customers is merchant cash advances. The lender issues the company an upfront cash payment, which it agrees to repay as a fixed percentage of the customer's card payments via a terminal. 

Benefits of merchant cash advances

  • Flexibility - Your business only pays back the loan when it receives customer card payments, meaning that repayments are tied to sales, so you can better manage 

    cash flow

  • Access - Depending on the lender and application process, you can get approved for a merchant cash advance within one working day. 

  • Unsecured - You don't need to put forward collateral, making it less risky than traditional financing.

  • Application process - When applying for a conventional loan, traditional lenders may require a business plan, but merchant cash advance lenders generally do not.

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

What is asset finance?

If you find yourself in an asset-heavy industry with a balance sheet including plant and machinery, it might be possible to access a loan using these assets as collateral. Asset finance is a way to get working capital for your business. For example, a 3D printing company could use its 3D printing machines to secure funding. The loan amount will be evaluated based on the market value of these assets (usually the resale value.)

Depending on the type of asset finance, the borrower can take full ownership of the asset, return it to the lender or take out a lease on a newer model once complete.

Benefits of asset finance

  • More accessible than traditional bank loans

  • Fixed payments make budgeting and cash flow easier to manage

  • Fixed interest rates

  • Failure to pay only results in the loss of assets, nothing more

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

What is invoice finance?

If your business regularly invoices for work, you could be eligible for invoice finance. As one of the best ways to ease cash flow problems and get paid faster for completed work, invoice financing is a great way to ensure your business continues to have cash flow and can grow without being held back by your finances.

Benefits of invoice finance

  • A quick injection of cash

  • Fast turnaround

  • Boosts credit sales

  • No risk to assets

Looking for finance?

Let us help you find the best financial product in the market. We will guide you through the whole process and make sure you get the best deal.

See your Funding Options

How can I improve my chances of getting a business loan?

If you are intent on growing your business, you will need a new source of capital to support you. Take heed of the following steps to prepare your loan application, along with some essential considerations.

1. Check your credit report

All lenders will check your credit history when you apply for a business loan. Get a copy of your report and ensure it accurately reflects your recent transactions and lending history. Those with the most favourable credit scores will get the best lending terms; hence it's worth trying to improve your score before applying for a new funding source.

2. Get your finances organised

Before you apply for a new loan, make sure that you settle all outstanding debt. A demonstrable positive cash flow means a company's liquid assets are increasing, enabling it to cover liabilities, grow the business, pay expenses, and provide a bulwark for unexpected situations. There is always the option to use debt refinancing when a borrower applies for a new loan or debt product with better terms than a previous agreement and can be used to pay down the existing obligation.

3. Check your business accounts

Most lenders will seek to review your most recently prepared financial accounts. Accounts filed over two years may not be accepted, so please ensure that you have accurate and up-to-date accounts filed. This should include a detailed P&L and a balance sheet.

4. Make a plan

At a minimum, you will need to explain how you intend to spend the loaned capital. If the money is for working capital, expect to be asked for more details about why you need it. You might need to borrow money to consolidate your business debts. If this is the case, you will have to make a plan and analyse how this will be achieved and benefit your business. Ensure that you can explain why you have arrived at the sum of money you applied for and that you can meet the planned repayments. This will convince a potential lender that you are a credible applicant. The business loan calculator is helpful for this and provides a breakdown of your estimated monthly repayments. 

How do I apply for a business loan?

Funding Options helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness, with all quotes being subject to status and income.

Our award-winning platform, Funding Cloud(™), accurately and quickly matches businesses with the right lender and finance option for their needs. From unsecured business loans to revolving credit facilities and a merchant cash advance, we work with over 120 lenders offering dozens of lending products. Apply for funding in minutes - our record from application to credit approval is just 20 seconds, and cash in the bank within as little as 18 minutes. 

Apply today to get the funding you need to trade, plan, and grow with confidence.

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