Table: sorted by loan terms, promoted deals first
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A business loan can give a company the necessary funds to get off the ground or get to the next stage of its evolution. That might require just a few thousand pounds or hundreds of thousands, for a couple of months or a couple of decades. There’s a range 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.
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 £10,000,000
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.
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 like Love Finance. Unlike most brokers, Love Finance is an online lending marketplace that lets businesses access funding in as little as “4 hours”.
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:
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.
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.
Here are some of the main sorts of loans that are available to SMEs in the UK:
With in mind that companies looking for a start-up loan have been operating for less than 2 years, these loans typically only offer small sums with short terms (typically 1 to 5 years). With little or no accounts to go on, lenders may want to use a personal asset (generally a property) as security for the loan. Government-backed start-up loans are available, offering a fixed, low rate of interest and free mentoring for a set period, in addition to extra security for lenders.
Unlike a start-up loan, small business loan eligibility doesn’t necessarily depend on how long a company has been trading. The company does have to be “small” however, and exactly how small varies from lender to lender. Many require a minimum annual turnover. Small business loans can be secured or unsecured, and more often than not charge interest at a fixed rate over terms up to around 60 months (5 years).
If your industry is prone to seasonal variations, this is one scenario that could lead you to consider a short-term business loan. As you might imagine, these loans come with higher rates than, say, a five-year loan, as lenders will need to make the process worth their while. Alternatives to short-term business loans include a revolving line of credit such as a 0% purchase business credit card, or a decent overdraft facility on a business account, although these options typically come with lower credit limits.
With a business credit card, you can borrow what you want (subject to a credit limit), when you want, so you’ll only pay interest for the days on which you borrow. Subject to a monthly minimum repayment, you can also pay back funds on terms that suit you. Unlike a fixed-term loan, which closes when all the money has been repaid, a credit card is a “revolving line of credit”, which means that the facility is effectively always open (which can be a mixed blessing).
Normally covering terms above five years, and potentially for larger sums, these loans can be used to fund larger projects for company growth. Expect close scrutiny of your business plan, loan security requirements and a longer, more thorough application process.
Revenue-based financing is a type of business lending where you will receive a lump sum of money for a percentage of your business’ revenue. Unlike traditional business loans, your monthly repayments may fluctuate with your revenue stream. So, if you’re having a particularly slow month, you will repay less and your repayment term will be longer.
Peer-to-peer (P2P) loans aim to connect investors with SMEs looking for finance. By cutting out the overheads normally associated with high-street banks, these companies are often able to offer more competitive rates.
If you or your business has limited or poor credit history, it may be hard to find a lender willing to offer you finance. However, there are many lenders that provide bad credit business loans, as well as a number of other finance options.
A commercial mortgage is one that is taken out on a property that will be used for business or commercial purposes, and not as a residence. Commercial mortgages can be more complicated than personal mortgages, and you’re likely to need a bigger deposit.
There are two main types of invoice finance: factoring and discounting. Both offer support to businesses with fluctuating turnover due to relying on client invoices for turnover. Invoice finance lets you borrow funds against the value of your unpaid invoices, minus a small fee.
If your business needs to purchase an expensive piece of equipment, such as a vehicle, machinery or computer system, you may want to consider asset finance. Instead of having to cover the cost upfront, you can pay it off in smaller instalments. Unlike a regular business loan, asset finance is secured against the cost of the asset itself. If you fail to repay the loan, the lender has the ability to take ownership of the asset.
Business cash advances can be useful for small businesses that have inconsistent sales or process most of their sales through card transactions. You can effectively get funds upfront that is then paid off using a percentage of future sales.
Regular cash flow can be a big concern for many businesses, and that is one of the advantages of a business line of credit. Instead of receiving a lump sum upfront like you would on a normal business loan, a line of credit gives you ongoing access to funds to use as you wish. You only pay interest on the amount of credit you use, but will need to repay what you’ve used in order to access the full limit again.
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.”
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.
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 give you greater control over your business cash flow by allowing you to cover any revenue shortfalls and freeing up additional capital that can then be reinvested 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.
Here are some of the key features to consider when comparing business loans:
Access a lump-sum of funding upfront for a fixed cost and then repay when your customers pay you.
Boost your spending power, track employee spending and enjoy perks and rewards with a business credit card.
Revenue-based finance can offer more flexibility than other funding options. We explain how it works.
Learn more about the alternatives to a traditional business loan.
Discover more about the different ways to fund your ecommerce business.
These awards recognise innovation in the areas of credit cards, loans, mortgages and BNPL. We reveal this year’s winners.
Use our business loan calculator to find out your monthly cost and total repayable amount.
See how to get a business loan as a limited company in the UK, and how much you can borrow.
Find out how to get a loan if you work for yourself, including which lenders offer business loans for sole traders.
Learn about government support and alternative options for businesses needing finance to help deal with the impact of coronavirus.
Find out if a business loan is considered income and what you can claim as a tax deduction when taking out a loan.
Businesses all over the UK face financial instability daily, which often requires outside funding. We have looked into how the state of borrowing for these businesses differs between the industry, over the years, and for the size of the business.
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