Business loans
Compare business loans
- Find out about business loan options for your growing business
- Compare business loan rates to help start or grow your company
- Check your eligibility before you apply, without impacting your credit score
What are business loans?
Business loans are a way to borrow a lump sum of money for a business, rather than for personal use. They’re a common way of raising finance to start up or support a company.
Business loans are typically the first port of call for organisations looking to expand operations or overcome short-term cash flow issues.
Business loans work in much the same way as any other type of loan. You apply to borrow a specific amount from a lender, then agree to pay back the loan, including interest, in regular payments over a set period of time.
Start Up business loans
If you’re just starting out, it’s worth looking into government backed Start Up Loans.
Running since 2012, the Start Up loans programme helps support business owners who are struggling to secure finance for their new venture.
Unlike business loans, Start Up loans are unsecured personal loans up to £25,000. Interest is fixed at 6% per year over the course of the loan, which needs to be repaid within five years.
It’s free to apply for a Start Up loan and there are no early repayment charges if you want to pay it off early.
To be eligible for a Start Up business loan you must be 18 or over, a UK resident, and be trading for less than 36 months.
Since the scheme began, 15,000 Start Up business loans worth over £100 million have been issued to help young entrepreneurs get their new businesses up and running.
How do business loans work?
Business loans work in a similar way to personal loans:
- Check your eligibility for a business loan before you apply – that way you’ll know how likely you are to be accepted without affecting your credit score.
- Apply online or in-person, depending on your lender.
- Your lender will want information about your business income and expenditure.
- Approval will depend on your company’s financial outlook, current financial situation and your own personal creditworthiness.
- If approved, you’ll receive the money which you’ll pay back, plus interest, within an agreed timeframe.
Swoop can also provide a free credit score tool. It’s a soft search, which means you can check your credit rating without affecting your credit score in any way.
What can a business loan be used for?
Business loans can be used for a variety of different purposes such as:
- Startup loans
- Growth guarantee scheme (GGS)
- Commercial mortgages
- Asset finance
- Merchant Cash Advance (MCA)
- Invoice finance
- Unsecured term loan
- VAT loan
- Revolving credit
- Venture debt
- Trade finance
- R&D tax credit loan.
When you apply for a business loan, lenders will most likely ask what you want to use the money for. It’s important to note that you cannot use a business loan for personal reasons such as paying for a holiday or a wedding.
Types of business loans
There are various types of UK business loans, both secured and unsecured. The best business loan for you will depend on your needs and financial situation:
Secured business loans
With a secured loan, you put up a valuable asset as security such as property, stock or machinery against the loan. Collateral lowers the risk, so interest rates may often be lower than for unsecured loans. But if you default on your repayments, you could risk losing your asset.
Unsecured business loans
With an unsecured loan, you won’t need to use a business asset as security. However, this means there’s more risk for the lender, so you may be charged a higher interest rate compared to a secured loan.
The amount you can borrow and the interest rate you’re offered will also depend on your own personal creditworthiness.
Peer-to-peer business loans (P2P)
With a P2P loan, your business borrows from an individual or group of peers rather than a bank or lender.
Your eligibility for P2P lending may depend on the type of business you run. For example, some P2P platforms only lend to sole traders.
Swoop acts as a credit broker, not a lender. Credit is subject to status and eligibility.
What our expert says...
It’s important to choose the right loan for your business, so ensure you understand how a business loan works before signing up for one. Think about how you want to use the loan, whether you have assets you could secure against the loan and how much the loan will cost you overall.
Take your time, read the terms and conditions, and weigh up the pros and cons before making a decision that could seriously impact your business.
- The Editorial Team, Experts in personal finance, insurance and utilities
Pros and cons of business loans
Here are a few advantages and disadvantages of business loans to consider before you decide whether one is right for your business:
| Pros | Cons |
|---|---|
| Different types of business loans can help in different ways – a start-up loan could help get your business up and running, while a small business loan could help with short-term cash flow problems when times are tough. | You may have a limited choice of lenders and a higher interest rate, especially if you have a bad credit rating. |
| Can help spread the cost of expensive equipment over months or even years | If you take out a secured loan and don’t keep up with repayments, you could risk losing the business asset you put down as security. |
| A fixed interest rate loan makes it easier to budget as you’ll know exactly how much you’re paying each month. | Eligibility criteria can be rigorous for business loans as your company’s financial outlook, credit record and your own credit history will be taken into account. |
Can I get a business loan with bad credit?
You may find it a lot harder to borrow money for your business with bad credit, but it’s not impossible.
If your credit rating is poor, you’re more likely to get approval for a secured business loan. But you’ll need to put up an asset as security. If your business is in financial difficulty, there’s more risk of you defaulting on your repayments, which means your asset could be repossessed.
Business loans for bad credit may also charge higher interest rates, and you might not be able to borrow as much.
It would be best to try and improve your credit score before applying for a business loan. A higher credit rating would give you access to a wider range of loans with competitive interest rates and a higher borrowing capacity.
Alternatives to business loans
A business loan isn’t the only way to get a cash injection for your company. If you’re not sure if a business loan is right for you, there are other funding options to consider.
Business credit cards
Business credit cards can be a good way of accessing small amounts of money quickly.
They may also offer features such as rewards, travel perks, cashback and 0% interest for limited periods.
There’s usually an annual fee to pay, and you’ll typically need to pass a credit check before approval.
Overdraft
Some banks offer low APR or even zero-interest overdrafts to their business account customers. An overdraft could be a lifesaver if you need to borrow a small amount of money for a short period of time.
However, an overdraft should only be used as a short-term cash flow solution. It isn’t suitable if you need to borrow a large amount over a longer period.
Invoice finance
Invoice financing is when you borrow money against an invoice that a customer owes you. Basically, their invoice acts as security for your loan. Once the invoice is settled, you then use the money to pay back your loan.
Asset finance
This type of finance allows you to buy or lease vital assets such as equipment, machinery or vehicles, without having to raise a large, upfront lump sum. The assets are then used as collateral against the loan which you’ll pay off monthly with interest for a fixed period.
Lease, contract hire and hire purchase are all types of asset financing. Depending on type of finance, at the end of the agreement you can choose to return, replace or keep the asset.
Crowdfunding
Crowdfunding platforms to raise finances for a new business venture are growing in popularity.
Specialist online platforms allow investors to invest in promising start-ups and expanding businesses. However, you may need to give them a stake of your business before they’ll agree to invest.
How much does a business loan cost?
The cost of your business loan will depend on how much you want to borrow, the APR you’re offered, and how long it will take you to pay back the loan.
Generally speaking, it’s best to try to repay the loan as quickly as possible. A longer term can mean lower monthly repayments, but you’ll pay more interest overall.
The following example is for illustrative purposes only, but it gives you an idea of how the cost of a loan could differ over two and seven years. It assumes there are no extra fees.
| Loan length | Amount borrowed | APR | Monthly payments | Total interest paid | Total cost of loan |
|---|---|---|---|---|---|
| 2 years | £10,000 | 10% | £459.46 | £1,027.10 | £11,027.10 |
| 7 years | £10,000 | 10% | £163.79 | £3,758.63 | £13,758.63 |
How to get a business loan
Applying for a business loan can be a long process. Lenders require more information than they would for a personal loan.
Lenders want to be sure that you can pay back the loan, and that your business plan is viable. So they may want to look at:
- Your business and personal credit scores
- Your account history
- How long your business has been trading
- Business turnover for the last 12 months
- Projected turnover in the next 12 months
- Assets to use as security if you’re applying for a secured business loan.
To be eligible for most business loans in the UK, your business must:
- Be based in the UK
- Be able to demonstrate it can repay the loan
- Have no late payments or county court judgements (CCJs).
Before you apply, it’s a good idea to shop around and compare business loans to find the best one for your needs. Our loans eligibility checker can give you an idea of which loans you’re likely to be accepted for before you apply without affecting your credit score.
Check your eligibilityWhy use Compare the Market?
Search for the right business loan, before you apply
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Frequently asked questions
Where can I get a business loan?
We search through over 200 lenders from high street banks to specialist lenders to ensure you’re matched with only the most appropriate solution for your individual business needs.
When choosing a lender, make sure they’re authorised and regulated by the Financial Conduct Authority (FCA).
What are business loan fees?
When working out the cost of a business loan, you’ll also need to consider if there are any extra fees involved. Fees to look out for include:
Origination fee – a percentage of the loan amount, charged by the lender for processing the application.
Application fees – a fee charged by some lenders to cover the cost of reviewing the application
Early repayment charge – also known as a prepayment penalty, which some lenders may charge if you pay off your loan early. This is typically the equivalent of one to two months’ interest.
Late payment fees – a fee charged if a payment is missed or made late
Processing fees – a fee associated with the loan
What if my business loan application is rejected?
If you have had a loan application rejected, don’t worry. Swoop can review the reasons for rejection, help improve your application, and connect you with other lenders or funding solutions that better suit your business needs.
