Is now the right time to take out a business loan before year-end?

In Q2 2025, SMEs borrowed £4.24 billion (up 8% year-on-year). But not all businesses are borrowing equally. Smaller companies are taking out more loans, while medium-sized companies are actually borrowing less. As businesses face higher employment taxes, shaky consumer demand, and global trade uncertainty, is this the right time to take out a business loan?

Borrowing isn’t a one-size-fits-all solution, and you’ll need to weigh up the benefits, understand the risks, and make sure your business is ready.

In this article, we’ll walk you through the pros and cons of year-end borrowing and show you how to check if your business is ready, what to watch out for, and how to avoid common mistakes.

Key points:

• Year-end borrowing hit £4.3bn in Q4 2024, making it a popular time to secure funding – but it’s not right for everyone

• You’ll need to check your cash flow, credit score, and business plan before applying for a business loan

• Funding Options by Tide can help when optimisation of working capital isn’t enough, offering access to business finance up to £20 million

Why Q4 may be a good time to borrow

While the start of the year tends to see more businesses take out a business loan, Q4 can also be an effective time to secure funding if you’ve got a clear plan and the timing works for you. An end-of-year cash injection could help you prepare for the new year, take advantage of tax benefits, or simply get ahead of your competitors.

• Prepare for the new year: If you’ve got big plans for next year (eg expanding, hiring, or launching a new product) a loan now could help you hit the ground running. You’ll have the funds in place before the year starts, so you’ll be ready to hit the ground running in January.

• Take advantage of tax benefits: Interest payments on business loans are usually tax-deductible. So if you borrow before the end of the tax year, you could reduce your tax bill and free up more cash for your business.

• Beat the year-end rush: Some lenders offer promotions or faster approvals in Q4 to meet their annual targets. This could give you access to lower rates or result in faster approvals.

• Stock up for the holidays: If you operate in retail, hospitality, or any seasonal business, Q4 can be the busiest and most lucrative time of year. A loan could help you buy extra stock, hire temporary staff, or ramp up marketing so you’re ready to make the most of the busy period.

• Invest while others hesitate: If your competitors are holding back due to economic uncertainty, borrowing now could give you an edge. You’ll be able to invest in growth, upgrade equipment, or improve your cash flow while others wait it out.

• Lock in rates before potential increases: Interest rates can change quickly. So if you see an attractive deal now, securing it before year-end could save you money in the long run.

• Improve your cash flow: If your business has seasonal dips, a loan can help smooth out your cash flow. You’ll then have the funds to cover costs now and repay when revenue picks up.

If any of these reasons resonate with you, it’s worth exploring your options. But remember, borrowing is only a good idea if it fits your business plan and cash flow. If you’re not sure, our business loan calculator can help you estimate costs and compare your options.

Reasons to hold off borrowing in Q4

While there are plenty of reasons Q4 could be a good time to take out a business loan, borrowing before year-end may not suit your business for a number of reasons.

• Your cash flow isn’t stable: If your revenue fluctuates or you’re already struggling with late payments, taking on a loan could make things harder. Lenders want to see steady cash flow, so it’s a good idea to sort this out first.

• Your credit score needs work: A low credit score can result in higher interest rates or even rejection for a loan. Although you can get bad credit business loans, if yours isn’t strong, consider spending some time improving it before you apply. For example, paying bills on time and reducing debt can make a big difference to your score.

• You’re not sure how you’ll repay: Borrowing without a clear repayment plan is risky. If you can’t confidently say how you’ll cover the monthly costs, it may be better to wait until you’ve got a more solid plan.

• You haven’t compared all your options: A loan isn’t your only choice. Alternatives like working capital finance, invoice finance, or even a business credit card might suit you better (and potentially cost less).

• The economy feels uncertain: If the sector you operate in is unstable or you’re worried about fluctuating demand, borrowing now could add unnecessary pressure. You may want to consider waiting until things feel more stable before taking on debt.

• You’re rushing the decision: Applying for a loan in a hurry can lead to mistakes like choosing the wrong lender or missing key details. So take your time to compare a range of options and read the terms carefully.

• You haven’t checked for hidden costs: Some loans come with fees, early repayment penalties, or variable interest rates. So make sure you know the total cost before you commit.

• Your business plan isn’t ready: Lenders want to see how you’ll use the loan to grow. If you can’t show a clear plan – like how new equipment could boost revenue or how hiring could increase sales – you might struggle to get approved.

If any of these apply to you, it might be worth holding off. But if you’re still unsure, our guide to business loans can help you weigh up your options.

How to assess if your business is ready

Before you apply for a loan, it’s worth taking a step back. Not every business is ready to borrow, and that’s okay. Here’s how to check if you’re in a strong position.

1. Check your financial health

Lenders want to see that you can afford to repay the loan. So they’ll look at your cash flow, profitability, and trading history to check if your business is making a steady profit and your cash flow is healthy.

If you’re struggling with late payments, high overheads, or inconsistent revenue, you might need to work on those areas first. A lender will want to see that you can comfortably cover the loan repayments, even if sales dip for a month or two.

2. Review your credit score

Your credit score is one of the first things lenders check. If it’s low, you might find it harder to get approved or be limited to higher interest loans. The good news is that you can improve your score by paying bills on time, reducing debt, and not using more than 30% of your available credit.

If your score isn’t great, don’t panic. Some lenders specialise in working with businesses that have less-than-perfect credit. You might just need to shop around a bit more.

3. Get your paperwork in order

One of the biggest reasons for loan rejections is missing or incomplete paperwork. So before you apply, make sure you’ve got everything ready.

That usually includes:

• 6 months of bank statements

• Your latest profit and loss statement

• A business plan or cash flow forecast

• Proof of identity and business registration

Not only should having these documents to hand speed up the process, they’ll also show lenders that you’re serious and increase your credibility and chances of approval.

4. Consider your legal structure and collateral

Some types of loan require collateral or personal guarantees, including equipment financing and commercial mortgages. Limited companies also typically have access to more options than sole traders, so it may be worth reviewing your business structure to understand what suits you best before applying.

It’s a good idea to review all these factors in advance to make sure you understand what lenders might require and prepare accordingly.

5. Compare your options

Not all loans are the same. Some are designed for short-term needs, while others are better for long-term investments. And the terms can vary a lot between lenders.

Research different lenders and loan products carefully, compare interest rates, repayment terms, fees, and eligibility requirements to find the most suitable fit for your business needs.

Year-end loan strategies for different business needs

Every business is different, and that means your borrowing needs will be, too.

Expanding or hiring

If you’re planning to grow your team or open a new location, a fixed-term loan could be a good fit. You’ll get a lump sum upfront, which you can use to cover costs like salaries, rent, or equipment. And because the repayments are fixed, you’ll know exactly what to budget for each month.

It’s important to make sure the loan aligns with your growth plans. For example, if you’re hiring, will the new staff bring in enough revenue to cover the repayments? And if you’re expanding, will the new location be profitable quickly enough? A solid business plan will help you (and your lender) see the bigger picture.

Managing cash flow

If business fluctuates with the seasons, a revolving credit facility or overdraft might work better than a business loan. These let you borrow as you need, so you only pay interest on the amount you use, which is ideal if you’re not sure exactly how much you’ll need.

The advantage here is flexibility. You can draw down funds when cash flow is tight, then repay when revenue picks up. Just make sure you understand the terms, since some facilities come with fees or variable interest rates.

Seizing opportunities

Sometimes, you just need to move fast – perhaps a supplier’s offering a discount for early payment, or you’ve spotted a chance to buy stock at a lower price. In these sorts of situations, a short-term loan could give you the cash you need quickly.

Short-term loans usually last between three and 18 months, and they’re designed to be repaid fast. That means higher monthly payments, but you’ll clear the debt more quickly and avoid long-term interest costs.

Buying assets

If you’re investing in equipment, vehicles, or technology, asset finance could be a more suitable choice than a traditional loan. With asset finance, the equipment itself acts as security, which can make it easier to get approved. And because the repayments are spread over the asset’s lifespan, they can be more manageable too.

Another benefit is that you might be able to claim tax relief on the asset, which can help reduce your overall costs.

Common pitfalls and how to avoid them

Borrowing can be a great way to grow your business, but it’s easy to make mistakes.

• Borrowing more than you need: Taking on a loan amount larger than necessary can increase your monthly repayments and overall interest costs. So carefully assess your actual funding requirements and borrow only what’s essential for your business goals.

• Ignoring cheaper alternatives: Not exploring lower-cost financing options like overdrafts, invoice finance, or equity finance before committing to a loan could result in paying more than you need. So research all funding sources available to find the most cost-effective way to meet your needs.

• Rushing into a decision: Making hasty loan decisions without fully understanding the loan terms, repayment schedules, and total costs could trap your business in debt that’s unsuitable. So take the time to compare offers, read all fine print, and speak with any experts before signing an agreement.

• Not planning for repayments: Failing to prepare realistic cash flow forecasts and repayment plans could increase the risk of missed payments. So make sure you have a clear strategy on how loan repayments fit into your ongoing finances.

• Assuming all lenders are the same: Different lenders have varying criteria, fees, and flexibility, and treating all loan providers as identical can lead to choosing a lender that doesn’t suit your needs. So shop around and consider the lender’s reputation, the eligibility requirements, and the terms before picking one.

• Forgetting about fees: Overlooking arrangement fees, early repayment penalties, or hidden charges could significantly increase the cost of borrowing. So, ask for a full breakdown of fees and factor these into your cost calculations before committing.

• Using the wrong type of loan: Applying for a loan that doesn’t match your needs (eg choosing a long-term loan for short-term needs) could cause cash flow problems and result in higher costs. So research the different loan types available and choose one that’s aligned with your business plan and ability to repay.

Find business finance with Funding Options by Tide

Whether you’re looking for a standard business loan, a short-term business loan, or something a little more specialist, like auction finance for property developers, we’re one of the leading names in business finance in the UK, having helped facilitate over £1 billion in finance to more than 20,000 customers.

Checking if you’re eligible is free, only takes a few minutes, and while a full application would impact your personal or business credit score, checking eligibility won’t. Just submit your details via the link below to find out if you could be eligible to borrow up to £20 million.

Find business finance.

FAQs

What’s the difference between secured and unsecured loans?

Secured loans require collateral like property or equipment that the lender can seize if you don’t repay, generally resulting in lower interest rates. Unsecured loans don’t need collateral but usually have higher rates and stricter credit requirements.

Can I get a loan with bad credit?

It’s harder, but possible, to get a loan with bad credit, although it will likely come with higher rates and stricter terms. Specialist lenders may offer loans if you can prove you can afford repayments, but improving your credit beforehand should help.

How does a business loan affect my taxes?

The interest on a business loan is usually tax-deductible, which could reduce your taxable profits. Tax rules are complex, so speak with an accountant to make sure you understand the potential impact.

What’s the fastest way to get a loan before year-end?

Short-term loans or overdrafts can provide quick access, sometimes within 24 hours for existing customers. Merchant cash advances or invoice finance can be even faster, but they often come with higher costs.

What if I can’t repay my loan?

If you can’t repay your loan, contact your lender immediately. They may offer options like payment holidays or adjusted terms to help. Ignoring the issue could dent your credit rating but acting early could give you more options.

Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.