If you’re considering a business loan, there are a lot of things you need to bear in mind. With a wide range of loans on the market and various products designed for speed, short terms, growth projects, or small businesses, it’s hard to know where to start. There are also many different lenders on the market — you can get a business loan from high-street banks, challenger banks, online lenders, and small local specialists.Get a business loan
Finding the right business loan for your situation has never been easier. Whether you need finance to boost your working capital, purchase equipment or if you’re eager to put some exciting growth plans into action, there are a number of solutions out there to choose from.
Alternative lenders are making it easier and quicker for SMEs to access funding. You may also be eligible for an unsecured business loan, meaning you won’t have to provide assets or property as security. Other options to consider include business credit cards and bridging loans (short-term business loans designed to get you from A to B).
Use our business loan calculator to calculate how much your loan could cost. You can also compare different loan types and see what you might be eligible for based on your requirements and circumstances.
With so many products and providers, the eligibility criteria, interest rates, and overall costs can vary significantly. Let’s take a look at everything you need to know about business loans.
Business loans is a broad category, and can refer to lots of different products including:
Within these product categories, you’ll find loans designed for specific situations:
Some products are designed for speed, so you get the cash as fast as possible. Our record at Funding Options is 1 ½ hours from first enquiry to money in the customer’s account.
How fast a loan is largely depends on how prepared you are. Lots of lenders require detailed documents such as filed accounts and forecasts, and your ability to get these documents together can make the difference between a couple of days or a couple of weeks.
Some loans are designed for the short-term, with agreements between 3 months and 2 years. Term loans of more than 2 years would be considered medium- or long-term. If you're considering a loan for a very short term, it's also worth considering revolving credit facilities and other business overdraft alternatives.
Some lenders cater for small businesses specifically. Small business loans have historically been challenging to get from the banks, but with the range of alternative finance available these days, there are many more solutions out there.
It's often possible to get a business loan if you have a poor credit rating. Although it's certainly more challenging to borrow money with bad credit in the background, it's still very much worth exploring — and you might be surprised at the choices potentially still available if you're willing to offer security or a personal guarantee. Find out what loans are available if you have bad credit.
We’re specialists in helping firms find the lender that’s right for them from the whole market — so get in touch with us or apply online if you’d like help finding the best business loan for you.
Here’s a summary of what you can expect from different business lenders:
It’s common knowledge that the banks aren’t lending to businesses as much as they used to — the effects of the credit crunch and new banking regulations are still being felt years later — and lots of firms aren’t suitable for bank lending.
If you approach a major bank for a business loan, they’ll want to see a strong balance sheet, significant security and a long trading history. For those that are eligible for bank funding, it’s usually the cheapest option in terms of interest rates — but many other firms find it’s a long application process that leads to a ‘no’.
For these reasons, HM Treasury set up the Bank Referral Scheme. Funding Options is proud to be a government designated finance platform for the scheme, and we help businesses every day who were unsuccessful with the banks.
Challenger banks are similar to high-street banks on the products they offer and the overall cost, but generally have slightly more flexible criteria that means their loans are open to a wider range of businesses. Their application processes are normally faster too, although they can still be slow.
At the forefront of alternative finance, the larger independent lenders offer some of the best alternatives to the banks. These providers are large and established, with plenty of cash to lend, but don’t have the same restrictions as banks and are prepared to lend to a much broader spectrum of businesses and sectors.
Some are focused on one particular product while others offer the full range of business finance. In this area of the market you can expect more flexible criteria and much faster applications — the major downside being that they’re usually more expensive than banks.
Smaller specialist lenders are another important part of the alternative finance category, usually focusing on one or two types of lending. Their business loans are highly specialised, often designed for one particular sector, but this means the costs can vary widely.
Many of the smaller lenders offer very fast online processes, meaning you can potentially get a loan within a day or two. Best of all, instead of rigid criteria they’re much more likely to take a case-by-case view of your application for a loan.
With so many different lenders and products on the market, the eligibility criteria for business loans vary. In an initial consultation, expect to be asked about:
Turnover and profit
Loan amount vs. turnover
Payment history (e.g. CCJs, late payments)
While there are no set ‘standard’ criteria for business loans, there are a few basic factors that most lenders look at when assessing your business. Here are a few rules of thumb to bear in mind before you apply for a loan:
The loan amount is less than 25% of your annual turnover
Your business is profitable
More than 24 months trading history (for most products)
No outstanding CCJs or late payments
Your business is based in the UK
All of these factors help lenders build up a picture of your business. Generally, lenders are unwilling to lend more than 10-20% of your annual turnover, and they'll want to see enough revenue to demonstrate affordability. If you’re not making much profit or making a loss, it’ll be difficult to get a loan, and a short trading history (less than 2 years) can make things more difficult too.
Having said that, you might be surprised by what's still available to your business, and many of the lenders we work with are more flexible than the banks.
If you’d like to find out more about what kind of business loan you may be eligible for, starting an application is the quickest way to find out your options.
Business loans fall into two main categories: secured and unsecured. For secured loans, you’ll need some security to offer, while for unsecured loans lenders will normally want a personal guarantee.
You can use a variety of assets as security for a secured business loan, including commercial property, plant and machinery, vehicles, and stock. Lenders have different criteria for what they’ll accept as assets.
Unsecured loans, on the other hand, don’t require physical security but will often require a personal guarantee. Normally, lenders will want the guarantor to have good personal net worth and be a UK homeowner, demonstrating affordability.
If you’re interested in a secured loan, you’ll need to think about the security you have available. For unsecured loans, it’s important to consider the implications of offering a personal guarantee.
If you’re not sure which type of loan is right for you, read our guide to secured vs. unsecured loans.
The interest rates you can expect to pay vary depending on your business profile. There are various risk factors that the lender will consider, and generally speaking the higher the risk, the higher the cost of the finance.
Credit rating is one of the best indicators of what interest rate you'll pay for a business loan. If your credit history is poor, you’re likely to pay a much higher interest rate. Risk is also partly determined by the term length you need and the security you're able to provide.
Part of the interest rate calculation is also driven by characteristics such as how established your business is and its profitability, because these factors have implications for your affordability.
It's important to remember that headline interest rates can hide a range of costs such as arrangement, termination and penalty fees. For this reason, the best way to get an accurate estimate of loan rates is to make an application with us — it's completely no-obligation to do so.
The Competition and Markets Authority (CMA) is expected to make business loan providers make their products more transparently and consistently priced — something we wholeheartedly support at Funding Options.
For the purposes of this indicative table, we've used three business profiles, representing low, medium and high levels of risk (from the lender's perspective). Many lenders use risk bands to categorise applicants, while others calculate interest rates on a case-by-case basis. Please note, this table is for research purposes only, and each provider has their own way of calculating interest rates.
Profile A: Clean personal and business credit, good profits, trading history 5+ years
Profile B: Minor blips on credit file in the past, but good recent performance
Profile C: Recent credit problems such as satisfied CCJs or missed payments
If you’d like to find out the rates that could be available to your business, start an application — it only takes a few minutes to see your options.
If you’re ready to set your plans for a new business into action or have been trading for a short time already, you might be considering taking out a business loan to give yourself a head start. Startup business loans are a type of finance designed for companies who are in the early stages of their business journey.
Business loans for startups can be used to buy stock, invest in a premises or office space, pay for marketing or just provide your business with the working capital needed to set it on the right track. Due to strict underwriting rules and a reluctance to take on risk, loans for startups from traditional banks can be harder to come by.
Fortunately, there are plenty of alternative business funding routes and lenders to explore, and you can still access finance if you’ve been trading for less than two years.
So even if your bank turns you down, you may well find the ideal solution elsewhere. Some startup loans are backed and funded by the UK Government via British Business Bank Investments. In fact, the Government has invested a significant amount into funds and schemes such as the Startup Loans Company.
There are lots of different types of business loans available to startups. A loan can take the form of an unsecured or secured term loan. Asset finance can help you get the equipment you need to get your business off the ground and spread the cost over time. Invoice finance and merchant cash advances can help you overcome cash flow challenges.
In order to qualify for a startup loan, you’ll need to meet the lender’s requirements, whether your startup is a one-person endeavour or a medium enterprise. Lending criteria varies, but you’ll usually have to meet the following criteria for a startup loan:
Be starting a new business
Have set up (or planning to) as a business entity: sole trader/self-employed, Limited company (LTD) or Limited liability partnership (LLP) in the UK
Be 18+ years old
Be a UK resident
Be starting a business in the UK
When applying for a startup loan, the lender will also want to see your business plan. A business plan contains everything from your financial projections to what marketing strategies you’ll be implementing, as well as the business idea itself and your goals. This will enable the lender to better understand how you’ll use the funding.
A business loan is a sum of money that the lender provides and the borrower pays back, plus interest, over a set period of time. Some lenders may charge you if you decide to pay your loan amount off early. You can apply for a business loan online — the lender will require specific documentation in order to carry out checks and make a decision.
Your business loans’ interest rate will depend on how risky the lender deems you when it comes to advancing you the money. A fixed interest rate remains the same, so you’ll pay a set amount of interest for the term of the loan. Floating rates, on the other hand, change in line with the lender’s interest rate as well as the rate the Bank of England sets.
You can find a business loan quickly through the Funding Options platform. Initially, you’ll just need to tell us how much you want to borrow and what it’s for. You’ll also be required to provide some basic information about your business. Once you’ve submitted the form, our algorithm will compare up to 100+ lenders and match you with the most appropriate.
It’s important to fill out your application accurately — even the smallest mistake could lead to your application getting declined. When you apply for business finance through Funding Options, a Finance Specialist will be on hand to help you navigate the process, from application to money in the bank. To help things move along smoothly, get the following ready before you apply:
Business bank statements
Information on profits and losses
Depending on how much business finance you need and your individual circumstances, you could be eligible for a business loan of anywhere between £1,000 and £15M+. How much you can borrow will also vary from lender to lender and you should only take out a business loan if you know you can pay it back along with the interest.
The variety of lenders on the market today and advancements in technology are making it easier to apply for a business loan and receive a decision quickly. Even if your business credit history needs improvement, you might still be eligible for a business loan through alternative lenders. There are also grants and government initiatives out there designed to help businesses grow and stay active in challenging times.
Business loans is a wide and varied part of the business finance market, so we’ve put together a comprehensive Business Loans Guide to help you find the right loan for your business.
The guide includes in-depth information like how you can choose a business loan, the different types of security lenders will accept, how the application process works, and what lenders look for in your application.
Funding Options is partnered with 40+ CBILS lenders. If your business has been adversely affected by the pandemic, you can use Funding Options to apply for a CBILS loan.