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3 JUN 2020 - UPDATED 29 DEC 2023

Your guide to business loans in 2024

Is your small business in need of extra funding? Running a small business takes serious effort. If you’re not careful, expenses can quickly add up, leaving you in need of extra cash to keep your growth going.

Business loans are a great option for gaining extra funds without hindering your growing business. The key to finding the right loan for your company is to understand the different types of business loans available to you within the UK.

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What is a business loan?

Unsecured and secured loans

Working capital finance

Asset financing

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A business loan refers to funds provided to a business from a financial or lending institution. These funds are given to the business contractually under the promise of payment, with varied interest rates that accrue over a set repayment schedule.

Business loans are commonly used for covering major business expenses. This can include purchasing equipment, increasing inventory for an upcoming expansion, or hiring employees for your dream team.

What types of loans can I get?

There are a range of loan types to choose from, however, what you ultimately decide on may depend on your needs and eligibility. Here are just a few of the loan types that may be available to your business:

Secured business loans

Sometimes referred to as asset-backed lending, a secured business loan requires assets to back the loan as a security. These assets can include business property and equipment. Secured small business loans present a lower risk to the lender, resulting in better terms for you as the borrower. They typically have fixed interest rates and cheaper monthly payments.

Unsecured business loans

Unsecured small business loans do not require an asset to be held as a security. This option is attractive for very small companies and startups without assets. These loans are often used to help smaller companies expand and increase their working capital. Unsecured loans can be quicker to arrange and provide funding for unexpected bills, however, they often have higher interest rates and fees. Lenders will typically ask for a personal guarantee before agreeing to this type of loan.

Working capital finance

Working capital is usually used to support a specific project or growth strategy. The amount you are eligible for is often calculated by subtracting your current liabilities from your current assets.

Asset finance

Let’s say your business needs an asset, such as new IT equipment or a vehicle. Opting for asset finance enables you to purchase the item today and pay for it in instalments. It’s important to remember that asset finance typically requires an upfront deposit and there is less flexibility with early repayments.

Bad credit business loans

If you have a low personal or business credit score, you might want to consider these types of loans. It’s important to be aware while bad credit business loans are generally more accessible, they’re also more expensive.

Invoice finance

If you’re currently owed payment on invoices, you can use those invoices as security to receive an invoice loan. This type of loan is great for helping with cash flow. Invoice finance is only as good as the strength of your debtors, customers often have to change the account they pay into, and this type of financing can be admin heavy.

How to apply for a business loan if you live in the UK

If you live in the UK and you’re ready to expand your business, Funding Options by Tide is here to help.

Get started today to see your funding options

We provide UK SMEs with access to fair business loans, matching our lending quotes to your specific financial needs and business scenario. Through Funding Options by Tide, you can match with 120+ lenders for loans from £1000 to £20M.

Plus, our experts are on standby to help you through the entire process!

What can I use a business loan for?

Development

Developing a new product or additional features can be expensive. A business loan can support your R&D efforts.

Equipment

Whether you need a new oven for your chef or some computers for your new hires, a business loan can be used to purchase essential new equipment.

Growth

Scale faster with additional funding to support your marketing, account management, and business development initiatives.

How much can I borrow with a business loan?

Business loans can provide you with funds anywhere between £1,000 and £20M.

Loan terms can vary from a one-month repayment up to 15 years. Using a business loan calculator can help you determine the cost of the finance you’re looking to borrow.

Enter the amount you plan to borrow, the quoted annual interest rates, and the term length to see how much a loan could cost your business.

Check out Funding Options by Tide’s Online Business Loan Calculator here!

Interest rates can vary depending on the lender but 7.38% is a good value to try

Calculations are indicative only and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.

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What are the application timelines?

A loan can take anywhere between a few hours to a few weeks to set up. The time it takes to get a business loan depends on factors such as the type of loan and the lender. For instance, secured loans tend to take longer to set up than unsecured loans.

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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.

Want to know more about business loans?

How do business loans work?

Similar to personal loans, obtaining a business loan requires you to submit an application to a lender. 

Typically, business loans are offered by banks, financial institutions, or alternative lenders. An eligibility criteria is usually used to determine the amount of money an applicant can borrow. To do this, lenders evaluate the business’s creditworthiness, financial history, and business plan before approving a loan. The loan terms, including interest rates and repayment periods, vary based on the type of loan and the borrower’s profile.  

  1. Choose your lender

  2. Decide if you want a secured or unsecured loan

  3. Carefully review the contractual terms set out in the lender’s terms and conditions for each loan you apply to. You should consider these carefully before proceeding.

  4. Complete the lender’s application, depending on the lender, you may have to pay an application fee

  5. Review the lender’s terms, such as the interest rate and repayment term

  6. If you’re pleased, accept the terms and receive your funds

If you accept a lender’s terms, you are locked into a specific repayment plan. Usually, you’ll repay the loan monthly with interest over a set period of time, for example, 12 months. However, you can often make early repayments if you choose to, this is dependent on the terms set out by the lender.

Can you get a business loan if you live in the UK?

If you live in the UK, you can apply for business loans from various lenders. 

Depending on the institution, UK lenders may offer business financing options to UK-based businesses. In terms of how to get a business loan in the UK, the steps are the same as those listed above – find a lender, decide what type of loan you want, and submit an application. 

Additionally, you must be 18 years or older, have a business registered in the UK, and meet the lender’s credit requirements to be eligible for a business loan.

Do business loans affect your credit score?

In cases where you take out an unsecured loan, your lender will likely ask you to make a personal guarantee. This will usually require a credit check. Personal guarantees are legally binding agreements that make you personally liable for the loan amount if your business is unable to meet its repayment obligations. 

When you agree to a personal guarantee, this can show up as a record of a loan on your personal credit. Sometimes, even the application itself could have a negative impact on your credit score. This all depends on the type of credit check your lender has to conduct. For example, whether they are performing a hard check or a soft check.

Will bad credit affect your application?

Your credit rating greatly impacts your eligibility for a business loan.

Lenders use your credit rating as an indicator of how likely you are to repay your business loan. If your credit is bad, this can mark you as a high-risk borrower, leading to stricter lending terms. In some cases, traditional lenders may even be unwilling to work with you. 

To improve your chances of getting a business loans with good terms, follow these steps:

  1. Check your credit: Lenders will always check your credit history when you apply for a business loan. Get a head start by obtaining a copy of your credit report and ensuring it accurately reflects your recent transactions and lending history. 

  2. Organise your finances: Before applying for a loan, aim to settle existing debts and establish a strong cash flow. A demonstrable cash flow indicates a growing business, making lenders more likely to work with you when they review your accounts. 

  3. Check your business accounts: You need recent financial accounts to provide to lenders during the application process. Most lenders want up-to-date accounts, meaning you should have accounts filed less than two years ago, including a detailed P&L and a balance sheet.

Create a plan: Lenders want to know how you intend to spend their funds. When applying for a business loan, make sure you have a clear business plan and an explanation for why you need these funds.

Joe Morley
Joe Morley

Head of Unsecured Lending

Joe has worked in the alternative lending space since 2015. During this time he has helped hundreds of SMEs access millions in essential funding ranging from long-term asset-backed lending to short-term unsecured revolving credit lines and beyond. In his role, Joe manages and supports a large team of Credit Finance specialists.