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How to get the best business loan
A business loan can give a company the money it needs to get started or take its growth plan to the next level. Whether you need a few thousand pounds or a whole bunch more, for a little while or a long time, there are plenty of lenders out there to cater to the full spectrum of what you need.
This means that finding the best business loan is a matter of first understanding your business’ financial circumstances and needs, and then finding the loan or finance option that best meets those needs.
Business loans jargon explained
- APR. The Annual Percentage Rate (APR) represents an annual summary of the cost of a loan. As well as the interest, the APR also takes into account any compulsory charges – like an “admin” or “set-up” fee (if there is one). However, crucially, lenders only have to award the advertised APR to 51% of those who take out the loan – the other 49% could be offered a different (higher) rate, at the lender’s discretion. That’s why it’s often referred to as the representative APR.
- Fixed rate. A fixed rate means that the interest rate will stay the same for a set period of time, no matter what’s happening with bank rates. A fixed rate can be a popular option for some borrowers, and it allows them to budget with more certainty – knowing in advance the exact cost of a loan and the exact figure for each instalment.
- Variable rate. A variable rate is the opposite of a fixed rate, and can increase or decrease over time at the lender’s discretion. Typically, variations occur as market conditions generally shift – for example an increase or decrease in the Bank of England base rate.
Best fast business loan: Natwest Small Business Loan
If you need quick funds for your small business, Natwest business loans application takes 10 minutes using your Online Banking details, and if approved, you could have the money within 24 hours. You’ll also pay no setup or application fees, and can borrow up to £50,000
Best business line of credit: Capital on Tap
If your business needs ongoing access to funds, Capital on Tap offers a flexible line of credit loans for small and medium-sized businesses up to £250,000. Your loan funds can be accessed via your card or bank account, and can also earn business cashback and rewards via the Capital on Tap premium account.
Best business loan broker: Tide
If you’d like to get access to a range of loans to find the one that’s best suited to your business, then you might want to consider a business loan broker or “introducer” like Tide. Unlike most brokers, Tide was a direct lender up until recently and now acts as an introducer to many well-established lenders. With Tide’s broker service, businesses could access funding in “as little as 24 hours”, depending on the loan.
Which bank has the best business loans in the UK?
This will depend several factors such as the size of your business and the type and size of the loan you need. Some businesses may want to get a loan with the bank that they already have their business current account with, while others may prefer to get a loan through a specialist business lender.
Some of the banks that offer business loans in the UK include:
How do business loans work?
There are different types of business loans that work in different ways. What type you opt for can depend, among other things, on what stage your business is at.
Much like an individual, a company has a credit record and credit score. The healthier these are, the easier it will be to secure finance. A new business is obviously not going to have much in the way of credit history, so a lender will either want to start small or will need some form of security. Loans for launching a new business or for a business which has just launched are often referred to as “start-up” loans. These are typically available over terms of one to five years, and can be government-backed.
More mature businesses have a variety of loan options, thanks to a credit history, a few years of accounts and an established turnover. These are in addition to other types of credit available such as business credit cards or factoring. Let’s take a look at some of the main loan options available in a little more detail.
Pros and cons of business loans
Business loans can be a good option if you’re looking to borrow a large amount of money over a longer period and at a lower price than a business credit card. However, this isn’t the most flexible option and it can sometimes be hard to qualify for the eligibility criteria.
- Large borrowing amounts are available and you’ll typically receive the money upfront, great for a big or one-off project, like expanding your business or hiring new staff.
- You’ll know how much you’ll pay in interest and how much your monthly repayments will be from the get-go.
- Lower rates than a business credit card (subject to status).
- Good option for borrowing long term. Some lenders may allow you to borrow over up to 25 years.
- Not very flexible – you need to know how much you’ll need to borrow when you apply.
- The minimum loan amount may be more than you need to borrow.
- Potential early repayment charges.
- Some lenders have strict eligibility criteria based on revenue, credit score and the type of business.
- Lenders may require collateral and a personal guarantee.
- There are better solutions for cash flow issues.
- Not all lenders are transparent with their rates upfront.
What types of business loans are available?
Here are some of the main sorts of loans that are available to SMEs in the UK:
There will be heightened competition and innovation as lenders – in particular non-banks whose traditional markets have been disrupted by the pandemic – look to carve out new customer niches in order to remain viable. The competition will be the most fierce for the highest quality businesses, so those customers can expect to have a wider choice of products.”
What are my other business finance options?
So what happens if your business is too young or small to qualify for a loan with decent terms? Or maybe it’s just a bad time to take on debt? You still have financing options.
Business loan cost comparison
Loan amount: £50,000
- Loan term: 1 year
- Interest rate: 22%
- Monthly repayment: £4,633
- Total interest: £5,595
Loan amount: £50,000
- Loan term: 1 year
- Interest rate: 36%
- Monthly repayment: £4,903
- Total interest: £8,831
Should you get a business credit card?
If your business requires additional credit, you also might want to consider taking out a business credit card. Whether you’re running a startup or a large established company, business credit cards offer a range of benefits that can help you better manage your finances.
Business credit cards offer greater control over your cash flow, enabling you to address revenue gaps and freeing up additional capital for reinvestment in your business.You can also use a business card to increase your company’s spending power, better manage your expenses, and even earn business-focused rewards.
Does your business depend on invoices?
- Invoice discounting. You might want to consider invoice discounting if your business sometimes has gaps in revenue due to outstanding accounts. Invoice financing lets you borrow against your outstanding invoices and repay the lender once the client pays you. It is an ongoing service with loans that you can pay back in an agreed period.
- Invoice factoring. Alternatively, look into invoice factoring. Here, you sell your invoices to a third-party for a percentage of the invoiced amount. You don’t get the full value of your invoices – this is the more expensive of the two options explained here – but you won’t have to worry about credit control (chasing-up repayments). Don’t forget that with this option, the factoring company will have contact with your clients, so you’ll need to be OK with that.
How to choose the best business loan
Here are some of the key features to consider when comparing business loans:
How else can we help?
Compare loan rates
Merchant cash advance
Access a lump-sum of funding upfront for a fixed cost and then repay when your customers pay you.
Business credit cards
Boost your spending power, track employee spending and enjoy perks and rewards with a business credit card.
Frequently asked questions about business loans
Read more on this topic
Methodology for rating business loans
You’ll find star ratings on some of our business loan provider reviews. Here’s how our business loan experts came up with them.
Tax implications of business loans in the UK
Find out if a business loan is considered income and what you can claim as a tax deduction when taking out a loan.
Compare £30,000 business loans
There are a few different ways your company can get its hands on £30,000. We unpack them to help you choose the right way forward.
Compare £20,000 business loans
Discover and compare the various ways your company could access finance of £30,000 to unlock its next chapter of growth.
Compare business loans for £15,000
Learn about the different business finance products that could give your company access to £15,000.
Compare £10,000 business loans
Learn about the range of funding options available to help SMEs borrow £10,000 and explore which could be right for your company.
Compare fast £5,000 business loans
Learn about finance options that could give your business fast access to £5,000.
£100,000 business loans
There are a few different ways your company could get its hands on £100,000, and since the cost of borrowing will be significant, it’s worth comparing them.
Compare £50,000 business loans
Identified an opportunity to grow your business, but don’t have the cash lying around to take advantage of it? We’ll guide you through some of the ways your company could access £50,000.
How a personal guarantee on a business loan works
If you run a small business and need to borrow money, you may be asked to give a personal guarantee. We’ve looked at how it works and what risks it carries.