Business Loans UK: How to Find the Right One

Everything UK businesses need to know about business loans , from what they cost and how to apply, to which type of finance suits your situation. Includes a comparison of all major loan types, a borrowing cost example and a step-by-step application guide.

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What Is a Business Loan?

A business loan is a sum of money lent to a company for specific business purposes. The borrower repays the principal along with interest over a predefined period — either in fixed monthly instalments, or in a more flexible structure tied to revenue or card sales, depending on the product.

Business loans can fund almost any business need: buying equipment, hiring staff ahead of a growth phase, bridging a seasonal cash flow gap, managing a tax bill or seizing an acquisition opportunity. The key difference from a personal loan is that eligibility and pricing are assessed based on your business’s trading history, revenue, assets and credit profile rather than your personal finances alone.

UK alternative lenders and specialist finance providers now approve many SME applications far faster than was possible through traditional high-street banks alone, often releasing funds within 24 to 48 hours.

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Types of Business Loans Available in the UK

UK business lending is not a single product. Different products are designed for different business situations, repayment preferences and risk profiles. The table below gives you a quick overview before each type is explained in full.

1. Term Loans

A term loan provides a fixed lump sum, repaid with interest over a set period — typically 1 to 5 years, though longer terms of up to 15 years are available for secured facilities. Monthly repayments are fixed from day one, making budgeting straightforward.

Term loans are best for planned investments with a clear payback period: equipment purchase, premises fit-out, a management buyout or an acquisition. Unsecured term loans are available for smaller amounts — typically up to £500,000 — without requiring collateral, though a personal guarantee from a director is usually required. Secured term loans can support larger borrowing but require business or personal assets as collateral.

2. Revolving Credit Facilities

A revolving credit facility gives your business access to a pre-approved pot of money that you can draw from, repay and draw from again, up to your agreed limit. Interest is charged only on what you have drawn, not on the full facility limit. Think of it as a business-grade version of an overdraft, with greater flexibility and typically more competitive rates.

Revolving credit is well suited to managing working capital, bridging gaps between paying suppliers and receiving customer payments, or holding a cash buffer for unexpected costs.

3. Merchant Cash Advances (MCA)

A merchant cash advance provides a lump sum in exchange for a fixed percentage of your future card or payment receipts until the total amount owed is cleared. There are no fixed monthly repayments — a percentage of your daily card takings (the “holdback rate”) is collected automatically until the advance plus the factor rate cost is repaid.

MCAs are not loans in the traditional sense. There is no APR, no fixed term and no interest rate. Instead, the cost is expressed as a factor rate — typically between 1.09 and 1.50. Multiplying the advance amount by the factor rate gives you the total repayment. For example: a £30,000 advance at a factor rate of 1.25 means you repay £37,500 in total.

Because repayments flex with your revenue, a slow month means smaller repayments and a busy month accelerates repayment. There is no penalty for early repayment — the factor rate is fixed regardless of how quickly you repay.

4. Revenue-Based Finance (RBF)

Revenue-based finance is similar to an MCA but repayment is tied to monthly revenue rather than card transactions, making it available to businesses without a card terminal. When revenue is high, repayments are higher; when revenue drops, repayments drop proportionally. There is no fixed monthly amount.

Choose a term loan if: your revenue is consistent and predictable, you want cost certainty, and you are building a credit record for future borrowing.

Choose revenue-based finance if: your revenue varies month to month, you are in a growth phase with unpredictable income, or a fixed monthly commitment creates cash flow risk.

5. Invoice Finance

Invoice finance lets B2B businesses unlock cash tied up in outstanding invoices without waiting for customers to pay. A lender advances typically 80–90% of each invoice’s value within 24 hours of issuing it. The lender collects the full amount from your customer when the invoice is due and releases the balance, minus a small fee.

It comes in two main forms: invoice factoring (the lender manages your sales ledger and collects payments on your behalf) and invoice discounting (you retain control of credit control and your customers are usually unaware of the arrangement).

6. Asset Finance

Asset finance ties funding to a specific asset purchase — the asset acts as security, which typically means lower rates than an equivalent unsecured loan. Commonly used for vehicles, manufacturing equipment, technology hardware and machinery. Repayment terms are usually aligned to the working life of the asset.

7. Business Overdrafts

A traditional bank overdraft lets you draw beyond your account balance up to an agreed limit. Interest is charged only on the overdrawn amount. Overdrafts are flexible for day-to-day cash management, but they can be reduced or recalled at short notice and rates have risen in recent years — worth comparing alternatives before renewing.

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Secured vs Unsecured Business Loans

Secured business loans require collateral — typically property, equipment or a personal asset. The security reduces the lender’s risk, which usually results in lower interest rates, higher borrowing limits and longer repayment terms. The trade-off is that if the business cannot repay, the lender can seize the collateral.

Unsecured business loans do not require collateral and are better suited to asset-light or rapidly growing businesses. Processing is typically faster. The trade-off is higher rates and lower limits, plus most unsecured lenders require a personal guarantee from a director — meaning you are personally liable if the business defaults.

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How Much Can a UK Business Borrow?

Borrowing limits vary significantly by product, lender and your business’s financial profile:

• Term loans: from a few thousand pounds up to several million for secured facilities
• Revolving credit facilities: typically £1,000 to £500,000 for SMEs
• Merchant cash advances: typically £2,000 to £500,000, based on your monthly card turnover
• Invoice finance: up to 90% of the face value of your outstanding invoices
• Asset finance: determined by the value of the asset being financed

Repayment terms range from a few months for short-term working capital facilities to 15 years for large secured commercial loans. The exact amount and terms available to your business depend on your trading history, annual revenue and creditworthiness.

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What Does a Business Loan Cost?

The cost of a business loan depends on the product, the amount borrowed, your business’s risk profile and the lender. Here is what to look out for:

APR (Annual Percentage Rate)

APR is the annualised cost of borrowing, including fees. It is legally required to be disclosed and is the most useful measure when comparing term loans. However, many short-term and alternative lenders quote factor rates or monthly rates that obscure the true APR — always ask for the APR or the total cost in pounds before committing.

Factor Rates

Used by MCA and RBF providers instead of APR. A factor rate of 1.25 on a £30,000 advance means you repay £37,500 — a cost of £7,500. Factor rates are not directly comparable to APRs, so use total cost of credit (the total amount you repay minus the amount you borrowed) as your comparison metric.

Fees to Watch

• Arrangement fee: charged by some lenders at the start of the facility, typically 1–3% of the loan amount
• Early repayment charges: some lenders penalise repaying before the agreed term — check this before accepting an offer
• Monitoring or annual fees: common on revolving credit facilities
• Invoice finance service fees: typically 0.5–3% of turnover, plus a discount charge on drawn funds

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Is a Business Loan Right for Your Business?

A business loan makes sense when you have a clear use for the capital and a credible plan to repay it. Common situations where a loan adds real value:

• You need to purchase equipment or machinery and want to preserve cash flow
• You are expanding into new premises or markets and need upfront capital
• You have seasonal cash flow gaps that need bridging — for example, building stock before a peak trading period
• You want to consolidate existing business debt into one manageable repayment
• You are taking on a larger contract that requires upfront investment in materials, staff or equipment
• Your bank has declined your application — alternative lenders on a broker’s panel often have different criteria

Equally, a business loan is not always the answer. If your primary issue is late-paying B2B customers, invoice finance unlocks cash without taking on new debt. If revenue is unpredictable, revenue-based finance is more flexible than a fixed-repayment term loan. If you need a cash buffer rather than a lump sum, a revolving credit facility is often more cost-effective.

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Business Loan Eligibility: What Do Lenders Look For?

Eligibility criteria vary between lenders and products, but most assess the same core factors:

• Trading history: most lenders require at least 3–6 months trading; some require 2 years for larger facilities
• Annual revenue: lenders assess whether your revenue is sufficient to service the loan repayments
• Credit profile: both business and personal credit history are typically reviewed
• Cash flow: recent bank statements showing cash flow patterns and account conduct
• Purpose of borrowing: some lenders restrict certain uses; most accept growth, equipment and working capital
• Security: for secured loans, the value and type of collateral available

If your bank has declined your application, this does not mean you cannot get funding. Approval criteria vary significantly across lenders — an alternative lender may place greater weight on revenue and trading history than on credit scores, or be willing to lend in situations a high-street bank would not.

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How to Compare Business Loan Offers

When comparing loan offers, the headline interest rate is not enough. Focus on these factors:

• Total cost of credit — the total amount you repay minus the amount you borrowed. This is your true cost regardless of product type
• APR — the annualised rate including fees. Always ask for this; some lenders quote monthly rates or factor rates that look cheaper than they are
• Repayment structure — daily, weekly or monthly repayments affect cash flow differently; factor in your revenue cycle
• Early repayment terms — can you repay early without penalty? This matters if you expect to refinance or pay down the loan ahead of schedule
• Security requirements — secured loans have lower rates but put assets at risk; understand what you are signing
• Time to funding — urgency matters. Some lenders fund within 24 hours; others take 3–4 weeks
• Lender reputation — check reviews, whether the lender is FCA-authorised, and whether they are transparent about fees

The Fastest Way to Compare: Use a Multi-Lender Broker

Applying to individual lenders one by one is time-consuming and results in multiple hard credit searches, each of which affects your credit score. The more efficient approach is to apply once through a commercial finance broker with a multi-lender panel.

Fundably, an NACFB-member commercial finance broker, offers a single soft-search application that matches your business against 50+ UK lenders and returns matched offers typically within hours. There is no cost to apply and the soft credit check does not affect your credit score. A hard credit check only occurs if you choose to proceed with a specific lender’s offer.

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How to Apply for a Business Loan: Step by Step

Whether you apply directly to a lender or through a broker, the process follows roughly the same steps.

Step 1: Work Out What You Need

Before applying, be clear on the amount, the purpose and how long you need to repay. Lenders will ask, and a vague answer can undermine your application. Consider whether a lump sum term loan is right, or whether a revolving credit facility — which gives you flexibility to draw and repay as needed — might be more appropriate.

Step 2: Gather Your Documents

Step 3: Check Your Credit Profile

Review your business credit report before applying. Errors or outdated information can affect your eligibility — correct these before submitting applications. If your credit profile is thin, building it through smaller credit facilities before applying for larger loans can improve your terms.

Step 4: Apply Through a Multi-Lender Broker (Recommended)

Applying through a broker like Fundably takes around 5 minutes and returns matched offers from 50+ lenders without affecting your credit score. The matching uses a soft credit check only — no impact on your credit file. Once you receive offers, you can compare them side by side before deciding whether to proceed with any lender’s full application.

Step 5: Review and Accept an Offer

When you receive offers, compare the total cost of credit, repayment structure and any fees — not just the headline rate. If a broker is involved, they will typically provide tailored feedback and can negotiate with lenders on your behalf. Read the full terms before accepting any offer.

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Government-Backed Business Loans

The UK government periodically offers guaranteed lending schemes designed to support SME access to finance, particularly during periods of economic stress. These schemes are administered through accredited lenders — not directly by the government.

Schemes change over time, and eligibility criteria, available amounts and participating lenders vary. For the most up-to-date information on government-backed lending schemes, visit the British Business Bank website (british-business-bank.co.uk) or GOV.UK.

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Start-Up Business Loans

Getting a business loan as a start-up is harder than for an established business, because lenders have limited trading history to assess. However, options exist:

• Government Start Up Loans scheme: personal loans of up to £25,000 per director for early-stage businesses, administered by the British Business Bank. Visit gov.uk/guidance/start-up-loans-scheme for current details
• Some alternative lenders will lend from 3 months trading — typically smaller amounts at higher rates, with a strong personal guarantee
• Asset finance is sometimes available to start-ups where the asset provides sufficient security
• Founder and director personal credit profiles carry more weight for start-ups, since business history is limited

For start-ups with less than 6 months trading, a broker like Fundably can identify which lenders on their panel are open to early-stage businesses, saving you the time of applying to lenders whose minimum trading requirements you do not yet meet.

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Can I Get a Business Loan With Bad Credit?

A poor credit history makes borrowing harder and more expensive, but it does not automatically exclude you. Different lenders weight different factors:

• Some alternative lenders place greater emphasis on revenue and cash flow than on credit scores
• Secured loans — where an asset provides security — may be available despite a weaker credit profile
• Merchant cash advances and revenue-based finance are typically more accessible for businesses with imperfect credit, as repayment is tied to ongoing sales rather than creditworthiness at the point of application
• A strong personal guarantee can sometimes offset a weak business credit profile

Applying through a broker with a multi-lender panel is particularly useful if your credit profile is imperfect — the broker’s matching engine identifies lenders whose criteria your business meets, so you are not wasting hard credit searches on applications unlikely to succeed.

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Frequently Asked Questions

What is the difference between APR and a factor rate?

APR (Annual Percentage Rate) is the annualised cost of borrowing, including fees, and is legally required to be disclosed by lenders offering regulated credit products. Factor rates are used by merchant cash advance and revenue-based finance providers — they express the total repayment as a multiple of the advance (e.g., 1.25 means you repay £1.25 for every £1 borrowed). Factor rates are not directly comparable to APRs; always use total cost of credit (total repayment minus amount borrowed) as your comparison metric.

Does applying for a business loan affect my credit score?

A full (hard) credit search will appear on your credit file and can temporarily affect your score. Applying through a broker that uses a soft-search application at the matching stage — such as Fundably — avoids this. The soft check is not visible to other lenders and does not affect your score. A hard check only occurs if you choose to proceed with a specific lender’s formal application.

How long does a business loan application take?

Through a multi-lender broker, the initial application takes around 5 minutes and matched offers are typically returned within hours. If you proceed with a specific lender, full approval and funding can happen within 24 hours for some products (MCAs, revolving credit), with most term loans funded within 2–7 working days. Secured loans and larger facilities typically take longer.

Do I need a personal guarantee for a business loan?

Most unsecured business loans require a personal guarantee from a director, making you personally liable if the business cannot repay. Secured loans use business or personal assets as collateral instead. The requirement varies by lender and product; this will be made clear before you commit to any offer.

How many lenders should I compare before choosing?

There is no fixed number, but comparing at least three to five offers gives you a meaningful picture of the market. Through a multi-lender broker, you receive multiple matched offers from a single application — allowing genuine comparison without the time cost or credit impact of applying separately to each lender.

Can a sole trader get a business loan?

Yes, though the options available vary. Some specialist lenders and government schemes (such as the Start Up Loans scheme) are open to sole traders. However, some broker platforms and lenders serve incorporated businesses only — check eligibility before applying.

What happens if my bank turns me down?

Being declined by your bank does not mean you cannot get funding. Alternative lenders often have different criteria — some place greater weight on revenue and trading patterns than on credit scores, and some specialise in situations that mainstream banks will not support. Applying through a broker that covers the full spectrum of UK lenders gives you the widest view of what is available.

Compare Business Loan Offers Today

The best business loan for your company is the one with the lowest total cost of credit, a repayment structure that works with your cash flow, and a lender whose criteria you meet. The fastest way to find it is through a single multi-lender application.