Business Loans

In need of some business funding to generate company growth? A business loan from one of our trusted UK finance providers could be just what you’re looking for.

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Every business, at one point or another, could do with a cash injection. Cash injections can help you take that next big step in your business – whether you want to expand your team, take on new projects or explore new markets. Whatever your future business plans, a business loan can help support growth.

But with so many different loan types and providers to choose from, how do you know what kind of business finance is best suited for you?

At Capalona, we offer an unbiased, free loan comparison service for our customers, so sit back and read all about business loans, or jump straight in and get your quote today.

What is a business loan? How do business loans work? What type of business loans are there? The advantages and disadvantages of a business loan What interest rates can I expect for business finance? Business loan calculator The different types of business loan lenders Are business loans regulated? Are there business loans for sole traders and the self-employed? Can you get a business loan with bad credit? Are there business loans for startups? Do I qualify for a business loan? How to apply for a business loan

What is a business loan?

A business loan, or business finance, still serves as a popular way to finance UK SMEs, and they work much like any other loan you’ve applied for in the past.

This type of loan allows you to borrow up to £500,000 or more and can be spent as you see fit. Maybe you have to pay rent, bills or staff wages, or you need to buy business equipment and stock. You can even use it to expand or renovate your business premises – unlike a personal loan; you must spend a business loan on your business in some capacity.

Business loan terms are flexible, so they can be a good option for your SME whether you’re looking for short-term or a longer-term financing solution.

Loan repayment options can range from just three months to five years or more.

Business meeting in local coffee shop

How do business loans work?

Business loans are a reasonably straightforward financing option. If you have a mortgage, a business loan is similar. It’s similar in that you’re lent a sum of money which you pay back with interest on a monthly basis, within a specified timeframe.

Your loan repayment terms and interest rate along with any other fees and charges will be agreed upfront. So it’ll be clear what you’ll be expected to repay and when. No confusion here.

Business loans generally fit into two main types: secured or unsecured. We talk more about each below, but although the type of loan is different, they’ll both have fixed and flexible repayment terms.

It’s important to note that just as lender offers will vary, their terms and conditions will differ also. That’s why comparing business loans is essential to ensure you get the best deal possible for your business.

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What type of business loans are there?

You might be looking for business loans for sole traders or business loans for women – whatever you’re looking for, it’s easy to get bogged down in loan research; there seems to be so much choice. Thankfully, small business loans just fit into two main categories – secured loans and unsecured loans. However, there is a broad range of products that sit under them.

Secured business loans

As you can tell by its name, this loan is secured. That means the lender would require an asset to be offered as security. So if you default on loan repayments, they can seize this asset.

Sounds scary, and it can be if you don’t make the repayments on time. But, a good thing about secured business loans is that you can raise higher funds at lower rates as it’s secured, which means less risk for the lender.

Unsecured business loans

You’ve guessed it; an unsecured business loan doesn’t require an asset as security. This is a good option if you don’t have any assets to offer up. Instead of parting with an asset, the lender might need you to offer a personal guarantee (read: what is a personal guarantee?). An unsecured loan you can mean quicker access to cash but shorter repayment terms.

Still confused? Our guide on the main differences between secured vs unsecured business finance compares both types of loans and also includes an infographic!

Revolving credit facilities

Just like an overdraft or credit card from a bank, a revolving credit facility works in the same way. The lender gives you a continuous credit limit which you can draw down as little or as much as you need, pay it back and draw down again. You can do this as many times as you require within the length of the agreement. It’s a flexible way to borrow, and you only pay for what you use.

Merchant cash advances

A merchant cash advance is based on your card sales revenue. Technically it isn’t a loan, but an advance on your customer credit and debit card transactions. Providers will simply take a small portion of all future card sales until the advance is paid back in full.

So, if your business accepts card payments from customers in-store or online, then a merchant cash advance could be a great source of funding.

Invoice finance

Invoice finance is an asset-based loan that uses outstanding invoices to raise cash in advance for your business. You effectively ‘sell’ invoices to a lender at a discounted rate. There are many facilities that can be tailored to your needs, including factoring, discounting and selective invoice financing.

So, it’s really about understanding which is the best business loan for you.

Feeling pretty informed? Get your quote today and start comparing business loan lenders.

Government business loans

Due to the recent Coronavirus COVID-19 pandemic, which has seen many businesses forced to close or reduce their opening times, the government has created a financial support package which will help affected businesses through these unprecedented times.

These government business loan schemes are part of the wider support package and are provided through the British Business Bank. They are only available through participating lenders.

Coronavirus business interruption loan scheme (CBILS)

The coronavirus business loan scheme (CBILS) offers loans of up to £5 million to small to medium-sized businesses with a turnover of less than £45m who have been affected by the outbreak. The first 12 months are interest-free. The scheme will be extended until 31 January 2021. Learn more about the CBILS scheme here.

Business bounce back loan

The Bounce Back Loan Scheme offers businesses a fast and simple way to borrow between £2,000 and £50,000. The government will offer lenders a 100% guarantee with these loans with no interest to pay for the first 12 months. The scheme will be extended until 31 January 2021. Learn more about the Bounce Back Loan Scheme here.

Other government business loans and finance schemes to consider include:

The advantages and disadvantages of a business loan

As with any business finance, business loans have their pros and cons. It would be best if you always took the time to weigh up whether the pros outweigh the cons, and, of course, whether you can realistically afford the loan.

The advantages

They’re quick and convenient - When compared with a traditional bank loan, applying for a business loan is a relatively straightforward process. Business loans offer SMEs, just like you, quick access to funds.

Competitive rates - Business finance offers competitive interest rates. As they’re usually fixed rates*, you can have ultimate confidence in knowing what you’re paying for, meaning you can plan accordingly.

*check the terms for individual providers as some offer variable rates.

You have complete control - Unlike when you work alongside an investor or venture capitalist, you have complete control over your business direction. With a business loan, you don’t need to part with a percentage of your profits or shares. The lender only cares about getting the money they loaned you back.

Variety of funding options - There are a range of business loan products available from standard term loans to flexible credit lines.

The disadvantages

You could lose your assets - For a secured loan, the lender will need an asset as collateral. That asset is usually property (personal or business-owned). If it’s a personal asset, your home is generally secured against the loan. If you default on payments, you could lose that asset.

Lenders might not loan you the full amount - Although quite frustrating, it’s quite common not to receive the total amount you need. So just be prepared for this scenario, don’t build your project plan around the full amount, work out some contingencies, too.

Business owner signing off document

What interest rates can I expect for business finance?

Interest rates vary depending on your business and the product you choose. If you’re deemed higher risk, the cost of your business loan will be more expensive.

Lenders will always look at your credit rating – it’s the best indicator of what interest rates you can expect to pay. Other factors that will affect how much interest you pay include how profitable your business is and how well established it is.

Fixed rate vs variable interest rate

A fixed interest rate typically “locks” in the rate you pay across the term, whereas a variable interest rate can fluctuate up or down throughout the loan agreement due to lender rate changes and/or changes to the Bank of England base rate.

How can you find out what interest rates you’ll pay? There are two ways you can find out. Firstly, you can use our business loan calculator. This will give you a rough idea of what you can expect to pay.

But, for a more accurate calculation, we advise getting a quote.

After you’ve filled out our quote form and your application has been approved, you will receive a free, no-obligation quote within 24 hours.

We are a broker, so using our services is entirely free of charge, and you’re under no obligation to take the quotes further.

Ready? Get your quote today.

Business loan calculator

Work out the estimated monthly repayments and total cost of a business loan with our calculator. It’s free and can be used to help compare quotes you may already have or as an affordability tool to work out the best business loan terms for your needs.

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This calculator is intended for illustration purposes only and exact payment terms should be agreed with a lender before taking out a loan.

The different types of business loan lenders

High street banks

High street banks are probably the most familiar lender you are used to. The likes of Barclays, HSBC, Natwest, Lloyds, Santander, Nationwide, RBS and TSB that have a presence on the high street all provide business loan products.

These well-known banks can offer competitive rates. However, the application process can be stringent and challenging especially if your business is without a good trading history, strong balance sheet or valuable assets.

Challenger banks

Challenger banks are similar to high street banks except they offer more flexible business loans, credit cards and credit facilities, which are geared towards smaller businesses that the larger high street banks won’t lend to. Although the majority do not have a high street presence, customer accounts are typically managed digitally through an app or website only.

Some of the more popular challenger banks include Aldermore, Starling, OakNorth, Metro Bank, Cashplus and Atom Bank. Other challenger banks such as Revolut and Monzo currently do not offer business loans.

In a recent Which? Survey, challenger banks top the table in overall satisfaction against the largest high street banks.

Alternative lenders

Alternative lenders range from large independent to smaller specialists. They are an alternative choice to the bigger banks and offer a broad selection of business funding products.

Alternative business funders can offer better flexibility, cater to more business types and have less stringent terms than banks. They can provide business loans far faster than traditional banks. However, the only disadvantage is that they tend to cost more.

Are business loans regulated?

The majority of commercial business loans in the UK are generally not regulated by the Financial Conduct Authority (FCA). However, in some circumstances, business lending may fall under regulated activity, especially if you are a sole trader borrowing £25,000 or less.

To check if the lender you’re dealing with is registered with the FCA, you can do so by going to the Financial Services Register and searching for the firm by entering their name or reference number.

Are there business loans for sole traders and the self-employed?

If you’re trading as a self-employed sole trader, there are tailored business loans to help grow your business. They work just like any other commercial loan, except, as a sole trader, you will not be classed as a separate legal entity, i.e. a limited company. This means you will be personally liable for the debts, even if you trade under a different name.

Read more about sole trader business loans and loans for the self-employed.

Can you get a business loan with bad credit?

Yes, you can get a business loan with bad credit. Although it may seem harder to get funding if you have poor or no credit history, there are specific business finance options designed to help SMEs in these circumstances. For more information, take a look at our business loans for bad credit guide here.

Remember: Having poor credit can dramatically limit your access to getting a business loan. Improving your business credit score before you apply for business finance can increase your chances of acceptance. Check out our handy tips on how to improve your business credit report here.

Are there business loans for startups?

Absolutely! If you need funding for a great idea, a startup business loan can help accelerate your goals and get your business moving. As a new startup business, you may find it challenging to secure a business loan. However, there are options and support out there, including Government loan schemes that we can help you with.

Can I get a business loan to buy a business?

Yes, getting a business loan to buy a business can be an excellent option for business owners. There are many ways you can finance a business purchase, but choosing the right product will depend on factors including the amount you need to borrow.

Apply online to get your business loan quote - It’s quick, easy and free!

Do I qualify for a business loan?

After absorbing all this information, you might be thinking “am I eligible for a business loan?”

To be eligible, you must be:

  • Registered as a UK business
  • A UK resident
  • A limited company, partnership or sole trader
  • Trading for at least 3 months

With a whole host of UK lenders to choose from, you must check in case their eligibility criteria differs. You could be asked about your business turnover and profits, asked for bank statements and trading history and your payment history. The lender will want to see if you have had any late payments or CCJs.

If you’re a startup or you have bad credit, don’t panic! You can still qualify for a startup business loan or merchant cash advance. So being a new business or having poor credit doesn’t necessarily have to hold your growth plans back.

How to apply for a business loan

Applying for business finance is quick and simple, whether you’re applying for business loans for women or men, we’ve got you covered.

Fill in this form and provide us with a few basic business details. E.g. How much funding do you require? What’s the finance for? How long has your business been trading? Etc.

After you submit this, we’re all hands on deck, working to provide you with a tailored quote in just 24 hours.

And if you need fast cash, funds from our trusted alternative finance providers can be released within 48 hours.

Get your free, no-obligation quote below.

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