Interest Only Business Loans
If you want to keep monthly loan repayments as low as possible, you might want to consider an interest-only business loan. Learn more and apply below.
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- Check your eligibility in minutes
- Find out how much you could borrow
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- Can business loans be interest only?
- Am I eligible for an interest only commercial loan?
- Advantages of an interest only business loan
- Disdvantages of an interest only business loan
- Types of interest only business loans
- Interest only commercial loan rates
- How to get an interest only loan
Checking won’t affect your credit score
Can business loans be interest only?
Yes, a business loan can be interest only. This type of loan is used primarily to purchase commercial property or facilitate a buy-to-let investment. The way this loan is structured means it’s suited to borrowers who want to keep their outgoings low while they develop the property, ready to sell for a profit. They then repay the loan with funds from the sale.
This plan hinges on the property market and whether you can generate enough profit to repay the loan in full.
Am I eligible for an interest only commercial loan?
Although each lender’s criteria will differ, they largely look for the following:
- UK-registered business
- Over the age of 18
- A business plan with a robust exit strategy
- Meet lender affordability checks
- Have funds available for the deposit
If you don’t have an asset to secure the loan with (or you don’t want to risk your property), or you’re looking for a more general use business loan to market your business or invest in stock, there are plenty of different business finance options available. These can include unsecured loans, startup business loans, invoice finance, or merchant cash advance.
Advantages of an interest only business loan
- Keep cash in your business. Paying lower monthly loan repayments means you keep cash in your business.
- Grow your business quicker. By saving money on mortgage repayments, at least initially, you can use the extra cash to invest in your business, helping it grow quicker than if you had a standard business loan.
- Maximise rental yield. As long as your rental income covers the interest payments, you can build cash reserves and use funds to improve your property.
Disdvantages of an interest only business loan
- Balloon payment at the end. As you’re only repaying the interest, the principal loan amount remains untouched. After the interest only period, that amount is due in full, sometimes known as a ‘balloon payment’.
- Need a robust exit strategy. Before parting with their money, lenders want to see how you plan on repaying the full loan amount after the interest only mortgage term is over. So you’ll have to spend some time figuring out the best way to repay before applying.
- You’re risking an asset. By securing any loan with property, you risk losing that property if your repayments default. Although our lenders lend responsibly, it’s a good idea to assess what you can and cannot afford before you find yourself in financial difficulties.
- Higher deposit requirements. Deposits for an interest only commercial loan tend to be higher, with lenders asking for between 25% and 40%.
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Types of interest only business loans
These loans are mostly used to purchase or renovate property, so they are usually known as interest only commercial mortgages. You repay the interest for a pre-agreed period of time, usually between one and ten years, after which the principal (original) loan amount needs repaying, either by selling the asset, refinancing the loan (i.e. switching to a repayment mortgage), or paying the loan as a lump sum in another way, for example, using personal funds.
Interest only commercial loan rates
Interest rates are higher with interest only business loans, with some reaching 6%. That’s because the borrower doesn’t initially repay the principal loan amount alongside the interest. You can expect higher commercial interest only loan rates if you have bad credit or a lower deposit, too.
How to get an interest only loan
Applying for an interest only business loan is a quick and easy process. First, you can start by comparing eligible loan options using our free business loan comparison tool. Simply share what you’re looking for and compare options side-by-side — total repayable, interest rates, and more.
Once you find a suitable funding option, you can click to expand and learn more about it. Then, continue with your loan application by clicking through to the lender’s website.
- Getting a quote won’t affect your credit score
- It’s a self-serve platform, so get a quote whenever
- You’re under no obligation to accept any quote
Find and compare interest only business loans.
About the author
Adrian T
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Amazingly fast, efficient service, minimal paperwork. So much faster than my business bank of twelve years.
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