How to apply for a commercial loan

Find out everything you need to know to make an informed decision about commercial loans, including what they are and how they can help your business grow.

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How to apply for a commercial loan

Commercial loans are not a new concept, they date back to ancient Mesopotamia, when farmers would borrow seeds and livestock during planting season and then repay those seeds with interest once harvest season came. Today, this process has been formalised into: the Commercial Loan.

With the total value of lending projected to reach £488.1 billion this year, it’s fair to say the concept of lending has caught on.

If you’re considering borrowing as a way to help power your growth as a business, here’s everything you need to know about commercial loans, including what they are, what types of loans are available, and how to apply.

What is a commercial loan?

A commercial loan is a formal agreement between a business and a lender. In it, the lender agrees to extend something of value, such as capital or equipment, and the borrower agrees to repay the loan, usually with the addition of interest.

Commercial loans are used for a range of purposes, including balancing out seasonal variations in cash flow, purchasing new equipment, and meeting payroll commitments.

It can be helpful to understand the key terms you may come across when seeking a commercial loan, these include:

  • The borrower: That’s you! You’re the business and you receive the loan. This is true whether you’re a limited company or a sole trader

  • The lender: That’s who sends you the loan, you’ll usually need to liaise with them to organise repayments and you should always read the terms and conditions they send you.

  • The broker: That’s us – we help you find a suitable loan for your needs.

  • Collateral: Putting an owned asset up as security against a loan can help gain you better terms, such as lower interest rates. The asset is considered collateral.

  • A personal guarantee: Sometimes, like with a start up loan, it may be difficult for you to gain funding exclusively as a business. In that case, you could choose to seek a commercial loan that requires a personal guarantee, which means you are personally liable to repay the loan even if your business closes down.

  • Term: That’s how long you have to repay the loan.

What types of commercial loans are available?

There are many types of commercial loans available. Here are a small collection to get you started on your commercial loan journey:

  • Asset finance: Asset refinance enables you to leverage existing assets to secure funding. Alternatively, with asset-based finance, you can acquire or borrow new assets and spread the cost over a specific period.

  • Credit cards and overdrafts: Unsecured funding is available for businesses who may not be in possession of assets to put up as collateral. Two such forms of funding include credit cards (which provide you with short-term funding for everyday purchases) and overdrafts (which can be used to cover an unexpected bill).

  • Working capital finance: Businesses often need to pay for stock, inventory, and salaries before receiving income from clients or customers. Working capital finance is designed to bridge this gap and can be used to cover day-to-day operational expenses.

  • Business loans: Loans can involve a lump sum extended to a business and can be used to fuel growth or cover operational costs. Some business loans require security or collateral, others may require a personal guarantee.

How to apply for a commercial loan

The application process generally depends on the type of loan. However, as a rule of thumb, you’ll usually need to choose the loan you’d like to attain first, then speak to the lender either through an online portal or via a traditional brick-and-mortar method, submit details about your business, and then…wait.

Exactly how long you wait for approval could be anything from a few minutes to a few months.

While you wait, the lender will create a picture of your creditworthiness. Creditworthiness is an assessment of how likely you are to repay the loan. This assessment is made up of a range of factors, including your past track record with loan repayments, how regularly you pay your bills, and your business plan.

Once the lender has come to a decision, they’ll get back in touch either with further questions or to release the funds.

Brokers like Funding Options by Tide can help speed up the commercial loan application process by assessing your eligibility and presenting you with your options in a clear, easy to digest format. We can also help you compare interest rates, loan conditions, and terms.

Click here to begin your application.

The benefits of commercial loans

There are lots of great benefits to commercial loans, including:

  • Cash flow: Many businesses struggle with cash flow. For some, cash flow difficulties can come as a result of seasonal variations, for others, unpaid invoices can be the source of pain. Commercial loans help smooth out cash flow difficulties by giving you the funds you need when you need it.

  • Growth enablement: Growth often requires funding, whether that’s paying for marketing distribution, onboarding a new sales team member, or purchasing new inventory to sell.

A few risks you should be aware of

There are also a few drawbacks you should bear in mind:

  • Risk of default: If you don’t repay your commercial loan in time, you run the risk of defaulting which can have severe consequences on your ability to seek additional funding in the future.  

  • Repossession: Some types of commercial loans bring with them the risk of repossession if you do not keep up with repayments. For example, if you take out vehicle finance and don’t make the monthly repayments, the lender may take back the vehicle which could impact your ability to operate your business.

How much will a commercial loan cost?

This depends heavily on the lender, borrower, and their agreed terms, but generally, you repay the loan or value of the extended product, additional interest in the form of a percentage, and you may also need to pay admin fees or legal fees.

Example: Let’s say you take out a £1000 loan spread over 12 months at a 5% fixed interest rate. In that case, you’d pay back £87.50 a month. In addition to the £1000, you’d pay £50 in interest. On the other hand, if you take out a £1000 loan spread over 12 months at a 5% APR (annual percentage rate) you’d pay back approximately £85.61 a month and pay around £25 in interest.

Commercial loans for real estate

Real estate commercial loans can feel like their own beast. Here are a few of the different types of property loans you might like to look into to help meet your real estate goals.

  • Bridging loans: This is a short term loan designed to bridge the gap between finding a property you’d like to buy and gaining the full funding to acquire it by selling an existing property or getting approved for a mortgage.

  • Commercial mortgages: This type of loan can be used to help you buy a property that will be used for commercial reasons, for example, an office space or new company premises.

  • Semi commercial mortgages: Some commercial spaces double up as residential homes. Semi-commercial mortgages help you acquire a property that serves as both.

  • Auction finance: Auction houses often require you to make the payment quickly, auction finance is here to help.  

  • Property development finance: This form of financing can be used to help power development projects, for example, construction or renovation costs.

How to use a commercial loan as an SME

Commercial loans are a tool SMEs use to help them balance out operational costs and fuel growth. You can use a commercial loan to:

  • Distribute marketing material

  • Onboard new team members

  • Acquire essential equipment

  • Purchase non-physical assets, for example, copyrights or software

  • Buy inventory

  • Expand operations

  • Research new products

  • Buy company vehicles

The possibilities are nearly endless, just be sure to consider whether you can repay the loan before seeking funding.

Legal considerations for commercial loan borrowers

There are several considerations you should undertake with careful thought. These include:

  • Terms and Conditions: Consider the loan agreement carefully. Take a fine tooth comb to the terms and conditions – assess the term length, the interest rates, and what happens if you default, then decide if you’re comfortable with those terms.

  • Collateral: If you’re putting up collateral or security in order to gain the loan, consider the legal implications of this and decide whether you’re truly comfortable with the risk. Don’t forget, the economy can face down turns and businesses can undergo peaks and troughs. Consider how you will repay the loan if your business is impacted by any possible changes.

  • Personal guarantee: Check if your loan requires a personal guarantee. If it does, consider the legal implications of this. Can you repay the loan if your business cannot? Are you prepared for the risk of what could happen if you are personally liable to meet all the payments?

Upcoming trends in commercial lending

It’s an exciting time for lending. Here are some of the trending technology innovations we are experiencing:

  • Blockchain: Ever heard of crypto? Most people have at this point. Blockchain – the technology that powers crypto – has a wide variety of use cases including lending.

  • Open finance: Open finance helps smooth out the transfer of data, improving the loan application and approval process for borrowers and lenders alike.

  • P2P lending: This trend enables individuals to borrow from one another through online platforms.

Apply for a commercial loan with Funding Options by Tide

We help match SMEs to our network of over 120 lenders offering between £1000 and £20M. Click the link below and fill in the information to find out if you’re eligible for a commercial loan.

Apply for a commercial loan


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.

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Vivek Seda
Vivek Seda

Asset Lending & Property Team Lead

Vivek Seda is the Asset Based Lending & Property Team Lead at Funding Options. Vivek has been in the commercial finance industry for over five years, helping SMEs in the UK access over £40m of funding in that time. He also supports the business on working on corporate finance and structured transactions successfully funding Acquisitions and MBOs for businesses.

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