As a small business owner you might be thinking about loans as a way of starting or growing your company.
Unfortunately, loans are notoriously complicated, riddled with complex terms and teeny tiny small print. Let us demystify the process and show you some of the best small business loans around.
Is a small business loan right for me?
It depends what type of business you have, how developed you are and what you need the loan for.
For example, some loans aren’t great for seasonal businesses as making repayments during off-peak times of year will be challenging.
In this case it’s worth considering other funding options like friends and family, crowdfunding, incubators, venture capital, small business grants or switching your business bank account. Check out our rundown of the best business bank accounts open to UK SMEs.
If you want to go ahead, you can do a few things to improve your chances of success. Make sure you’re as clear as possible on how much you need to borrow and what exactly the loan would be used for. Work the loan into your business plan and have a cash flow forecast ready, making sure you include loan repayments.
Having these documents is particularly beneficial to new businesses with a shorter trading history. It’s worth asking an accountant to glance over them before you apply for the loan.
Get your website and social media in shape as the people assessing your business loan may be looking at them too.
Each provider will have their own eligibility criteria but generally you and your business should be UK-based, you need to be over 18 and not in the process of bankruptcy.
Can I get a small business loan with bad credit?
It is possible, though you’re more likely to be limited to smaller loans and/or higher interest rates. The rate of increase depends on the loan and the risk to the lender.
If you’re worried, you can seek out a firm who will perform a ‘soft’ credit check, so it won’t affect your credit score. Remember that lenders will often need details of partners, directors, members or signatories of your business and if there are any major blemishes on their credit histories, that could affect your chances of securing funds.
Ask a credit checking firm for your credit report if you don’t know how you’re doing. Some of the bigger players offer free trials.
Secured vs unsecured loans
A secured loan lowers the lender’s risk by securing it against an asset or guarantor. So, if you put up your home as collateral in a secured loan, the lender can take possession of it if you fail to make repayments on your business loan. The upshot of a secured loan is that you can nab higher loan payments.
Unsecured loans don’t have a guarantor or asset, making them riskier for lenders. To cope with said risk, they tend to lend out smaller amounts over shorter time periods.
High street banks
High street banks will provide the standard loans you’ll recognise – you borrow money upfront and pay it back over a pre-agreed term with interest.
We’ve listed the key products below.
|Bank||Secured/unsecured||Loan amount||Repayment period||Eligibility|
|HSBC||Secured (unsecured offering also available)||£1,000-£25,000||12 months – 10 years||Will need cash flow forecast and business plan along with management accounts and historic accounts|
|Barclays||Unsecured (secured option available)||Up to £100,000||1-10 years||You must be a sole trader, partnership, limited company, charity, club or association|
|RBS/NatWest||Secured||£1,000 to £50,000||1-7 years||Good credit rating without history of CCJs or bankruptcy
You must also hold a business account with any provider
|Lloyds||Can be secured or unsecured||£1,000-£50,000||1-25 years||You must need this loan for business use
You’ll need to provide proof that you can make your repayments on time along with details of any other business loan that you have. If you’re a limited company or limited liability partnership, you need to provide a guarantee
|Clydesdale/Yorkshire Bank||Can be secured or unsecured||£25,001-£10,000,000||Up to 15 years||Must be aged 18+ and have a business in the UK|
|TSB||Can be secured or unsecured||£1,000-£1,000,000||1-10 years||You must be a sole trader, partner or director who requires the loan for business use|
|Metro Bank||Secured||£2,000 – £60,000||1-5 years||You will need to have a business bank account with Metro Bank
You will need to have a business bank account with Metro Bank
They’ll generally consider businesses with over £2m turnover but can make exceptions.
Loan amount: £1,000-£25,000
Repayment period: 12 months–10 years
Eligibility: You will need a cash flow forecast and business plan along with management accounts and historic accounts.
You don’t need an HSBC current account to apply for a small business loan. There are no charges for additional repayments to your loan, but you can have a three-or-six-month repayment holiday at the start of the loan or take a January payment holiday during each year of your loan.
Please note that Santander isn’t offering loans at the moment. However, they are offering assistance to existing loan customers.
Loan amount: Up to £100,000
Repayment period: 1-10 years
Eligibility: You must be a sole trader, partnership, limited company, charity, club or association.
With Barclays, you can borrow up to £100,000 over 1-10 years, taking a six-month repayment holiday at the beginning of your loan if you wish.
Secured loans of up to £25,000 are also available, allowing you to stretch your repayments to 20 years and go interest-only. If that doesn’t work for you, you can opt for its asset finance product.
Loan amount: £1,000 to £50,000
Repayment period: 1-7 years
Eligibility: You must have a good credit rating without a history of CCJs or bankruptcy.
As they’re connected, the offering is the same for RBS and NatWest. You will need to provide three years’ address history. Unfortunately repayment holidays aren’t available but you can make fee-free early repayments and do fee-free early closures.
Loan amount: £1,000-£50,000
Repayment period: 1-25 years
Eligibility: You must need this loan for business use and must be applying for a minimum of £1,000. You must also be a sole trader, partner or director with authority to borrow on behalf of your business.
There are no arrangement fees or early repayment costs.
You’ll need to provide proof that you can make your repayments on time along with details of any other business loan that you have. Oh, and if you’re a limited company or limited liability partnership, you need to provide a guarantee.
Loan amount: £25,001-£10,000,000
Repayment period: Up to 15 years
Eligibility: Much like RBS and NatWest, the Clydesdale and Yorkshire Bank offerings are identical.
You must be 18+ and have a UK-based business. An arrangement fee may apply.
Loan amount: £1,000-£1,000,000
Repayment period: 1-10 years
You must be a sole trader, partner or director who requires the loan for business use.
You have a choice of a base rate or fixed rate loan depending on your business needs. The fixed rate offering lets you borrow between £1,000 and up to £1,000,000 over one to ten years. Loans are available on a secured or an unsecured basis and the arrangement fee can be up to 1.5 per cent depending on how much you borrow.
Fixed rate loans can be taken on a secured or unsecured basis. Capital repayment holidays may also be available.
Base rate, as its name suggests, relies on the Bank of England base rate which is somewhat more precarious. It’s for loans from £25,001 and can be repaid over one to 25 years. Be aware that security might be required.
Loan amount: £2,000-£60,000
Repayment period: 1-5 years
Eligibility: You will need to have a business bank account with Metro Bank and probably some security in the form of assets or a guarantee from a third party. They’ll generally consider businesses with over £2m turnover but can make exceptions.
Metro Bank only has one loan product for all businesses.
Digital banking platforms
Not many digital banking platforms offer business loans. Though these providers offer other services like foreign exchange or savings accounts, you’ll have to sit tight for more packages.
|Provider||Type of loan||Loan amount||Repayment period||Eligibility|
|Starling Bank||Standard||£25,0001-£250,000||12-72 months||Open to limited liability companies and limited liability partnerships – sole traders cannot apply.
Non-Starling customers can apply but they must open an account and make it your primary business banking account.
Your business must have been trading for at least 24 months.
|Monzo||Standard||Up to £25,000||You can choose how long your repayment period is||Only open to sole traders who are existing Monzo Business customers. Must be aged 18+.|
|Tide||Standard||£1,000 – £500,000||One month – 15 years||Must be a Tide business banking customer|
|SumUp||Cash advance||Dependent on circumstances||Dependent on circumstances||Must be a SumUp customer|
|Cashplus||Cash advance||Dependent on circumstances||Dependent on circumstances||Must be a Cashplus customer|
Loan amount: £25,0001-£250,000
Repayment period: 12-72 months
Eligibility: Starling Bank’s loan is open to limited liability companies and limited liability partnerships – sole traders cannot apply. Non-Starling customers can apply but they must open an account and make it your primary business banking account. Your business must have been trading for at least 24 months.
A personal guarantee will be required as security for this unsecured loan. A one-off fee of 4 per cent is required at the point of drawdown.
Loan amount: Up to £25,000
Repayment period: You can choose how long your repayment period is
Eligibility: Only open to sole traders who are existing Monzo Business customers. Must be aged 18+.
With the Monzo loan you can change your repayment period fee at no extra cost and there are no early repayment fees to worry about. Your loan will sit alongside your savings Pots feature.
No late repayment fees will be charged – just catch up in the app. However, you should know that Monzo might report these late repayments to credit reference agencies which could negatively affect your credit score.
Loan amount: £1,000 – £500,000
Repayment period: One month – 15 years
Eligibility: Must be a Tide business banking customer
Connect your business bank account and compare unsecured business loans without affecting your credit score. Apply in five minutes and your loan could be with you in 24 hours. You’ll need to supply your bank statements for the past year – can do this by connecting via Open Banking.
Tide also offer start up loans, business cash advance, invoice finance and other partner products.
12 of the best digital banking platforms for small business in 2023 – Considering a digital banking platform over one of the traditional stalwarts? We’ve picked out 12 of the best for your perusal
Other firms can provide finance options for your small business.
They’ll either be in the form of unsecured loans or an alternative form of finance which is more flexible. Here are the three other types of lending mentioned in the table below.
Rather than loans, some firms offer business cash advances. With these, you borrow a sum upfront and you pay back a pre-agreed amount which is taken straight out of your card takings, so repayment is more flexible.
Cash flow finance
This is a loan which is backed by a firm’s expected cash flow and can be either short or long-term.
Asset finance can be used to get equipment, machinery and vehicles without upfront costs. Typically, the lender will be paying for the asset and you’ll pay a recurring fee for a set period in order to use the asset.
|Provider||Type of loan||Loan amount||Repayment period||Eligibility|
|365 Finance||Cash advance||£10,000 – £40,000||Flexible||Must have been trading for at least 6 months
Average debit or credit card sales of at least £10,000 a month
|Lombard||Asset finance||Dependent on the loan||Dependent on the loan||Dependent on the loan|
|Liberis||Cash advance||Dependent on your average monthly revenue and how long you’ve been trading||Flexible||Dependent on your average monthly revenue and how long you’ve been trading|
|Fleximize||Secured and unsecured loans||£5,000-£500,000||Up to 48 months||Must have been actively trading for 6 months
Minimum monthly turnover of £5,000
|Iwoca||Unsecured loans||£1,000-£500,000||Up to 24 months||Open to sole traders, partnerships and limited companies
Start-ups have a maximum credit limit of £10,000
|Start-Up Loans||Unsecured loan||£5,000-£25,000||1-5 years||Companies who have been trading for less than 36 months
You can’t get finance from other providers
|Funding Circle||Secured and unsecured loan||£10,000-£500,000||6 months – 6 years||You must have been actively trading for at least one year
|Nucleus||Cash flow finance||£25,000-£250,000||3-60 months||You must have been trading for a minimum of three years|
Loan amount: £10,000 – £40,000 (cash advance)
Repayment period: Flexible
Eligibility: Your business must have been trading for at least six months and your average credit card and/or debit card sales must total at least £10,000 a month.
365 Finance offer a cash advance called Rev&U as opposed to traditional loans. You get a relationship manager by taking out this finance.
Loan amount: Dependent on loan
Repayment period: Dependent on loan
Eligibility: Dependent on the loan
Lombard offers a range of finance options including hire purchase and contract hire. The finance can fund a variety of improvements like tech, manufacturing and specialist assets. Lombard has relationship managers who specialise in the manufacturing, technology, green energy, commercial vehicles, agriculture, aviation and marine sectors.
Loan amount: Dependent on your average monthly revenue and how long you’ve been trading (cash advance)
Repayment period: Flexible
Eligibility: Dependent on your average monthly revenue and how long you’ve been trading
Loan amount: £5,000-£500,000 (secured or unsecured)
Repayment period: Up to 48 months
Eligibility: On Flexiloan you’ve got a choice between two packages: Flexiloan and Flexiloan Lite.
To be eligible, you must have been actively trading for at least six months and have a minimum monthly turnover of £5,000. Unsecured loans of up to £250,000 are available to businesses in Northern Ireland and Scotland.
With Fleximize you can land a loan with penalty-free early repayments and repayment holidays.
Loan amount: £5,000-£500,000 (unsecured)
Repayment period: Up to 24 months
Eligibility: Open to sole traders, partnerships and limited companies. Start-ups have a maximum credit limit of £10,000.
Iwoca offers borrowing ‘for cash flow, stock or investments.’ Interest rates start at 2 per cent a month, depending on your business.
Loan amount: Up to £25,000 (unsecured)
Repayment period: 1-5 years
Eligibility: Aimed at companies who have been trading for less than 36 months and can’t get finance from other providers.
This government-backed loan has a fixed interest rate of 6 per cent per annum. It’s not just funding: you get 12 months of free mentoring too along with pre-loan support to help you create business plans and cash flow forecasts.
Loan amount: £10,000-£500,000 (secured or unsecured)
Repayment period: 6 months-6 years
Eligibility: You must have been actively trading for at least one year
Partnered with the British Business Bank, Funding Circle provides secured and unsecured loans with rates from 9.8 per cent per year and you can make full early repayments at no extra cost.
Loan amount: £25,000-£250,000 (cash flow finance)
Repayment period: 3-60 months
You must have been trading for a minimum of three years.
This cash flow finance offering goes up to £250,000, repayable over three months to three years. To apply you’ll need to have a business registered in England and be a homeowner in England. You need to stump up three months of bank statements and a full set of business accounts. It’s geared towards small businesses who would benefit from cash flow payments, like expanding premises, recruiting or filling a cash flow gap.
Nucleus also provides property finance (term loans, bridging loans, interest only loans) and revenue-based loans. Each has different eligibility and required documents to set up.
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