Capital on Tap

Loan amount

£1k - £150k

Loan term

Varies

Loan type

Revolving credit facility

Capital on Tap offers flexible funding that can be drawn down to a business bank account or spent via their reward-earning credit card. Apply and get a decision in minutes.
NatWest Business

Loan amount

£1k - £50k

Loan term

1 - 7 years

Loan type

Small business loan

See Deal
via Capalona
NatWest Business helps businesses get the financing they need to start or grow their business.
365 Business Finance

Loan amount

£5k - £200k

Loan term

4 - 18 months

Loan type

Merchant cash advance

See Deal
via Capalona
365 Business Finance is a financial provider that offers cash advance products to small and medium-sized businesses in the UK. They provide unsecured business funding options, with no fixed repayments, terms or APR.
Iwoca

Loan amount

£1k - £200k

Loan term

1 - 12 months

Loan type

Flexi loan

Repay early with no fees. Decisions in 1 working day. Have help on hand with a dedicated account manager.
Hitachi Capital

Loan amount

£5k - £500k

Loan term

2 - 5 years

Loan type

Asset finance

See Deal
via Capalona
Hitachi Capital offers a variety of business funding options for limited companies, partnerships, LLPs and PLCs.
Fleximise

Loan amount

£5k - £500k

Loan term

1 month - 4 years

Loan type

Business loan

See Deal
via Capalona
Fleximize offers flexible business loans for SMEs and larger companies. SMEs can borrow up to £500,000 but they may even be eligible for higher-value finance where they can borrow upwards of £500,000.
ClearFactor

Loan amount

£100 - £5k

Loan term

Varies

Loan type

Invoice finance

See Deal
via Capalona
ClearFactor is the UK’s first fully digital invoice finance marketplace which allows trade investors to buy SME invoices.
Capify

Loan amount

£3.5k - £150k

Loan term

3 -18 months

Loan type

Small business loan

See Deal
via Capalona
Capify is a business finance lender that provides short-term financing solutions for small businesses and SME’s based in the UK.

Finding the best small business loans for you 

Small business loans can help your business secure more funds. Learn more about how they work, when to use them, and how to find the best loans for you with our guide. 

What are small business loans?

Small business loans are a business financing option allowing you to borrow money from a lender to fund business expenses that can help grow your company. 

Designed to help give your business the financial tools to develop, these loans typically lend smaller amounts compared to standard business loans and have eligibility criteria suitable for small businesses.

The amount you can borrow typically ranges from £1,000 to £500,000, but some lenders may only lend 10%-30% of your annual revenue.

You’ll need to pay interest on a small business loan. This is a percentage of the amount borrowed that you’ll have to pay back in addition to the original loan. 

The APR of a small business loan, which is the interest charged for borrowing that represents the annual cost of your loan as a percentage, can range between 3-13% depending on the provider. The credit history of your business and potentially your own personal finances will determine the interest rate you’re offered.

When you take out a small business loan, you’ll agree with the loan provider on the number of monthly instalments you’ll have to pay the loan back. The amount you’ve borrowed, the length of your repayment plan, and the interest rate applied to your loan will dictate how much your monthly repayments will be.

What are the different types of small business loans?

The best small business loans can differ depending on a few variables, and these will alter what type your loan is. It’s important you understand the different options available to you before applying. 

Long vs short term small business loans

The repayment period of your business loan can be either long-term or short-term. The one you choose will significantly alter the terms of your loan.

A long-term loan is repaid over an extended period of time, typically between 3-10 years, although some long-term loans can last up to 20 years. 

Choosing a long term loan gives you more time to pay back what you owe, resulting in smaller monthly repayments. These types of loans should offer a larger amount you can borrow and will typically have a lower APR, however borrowing costs will still be large as you’ll be paying off the loan for longer.

Although long term loans mean your monthly repayments will be low,  it’s important to remember you’ll pay more in interest over the full term of the loan and you won’t pay it off for a very long time. This could have you paying more when compared to a short-term loan.

A short-term loan may be better for those who need an instant cash injection for a less long-lasting investment, such as an advertising campaign. 

Short term loans are usually paid back within 24 months, meaning your business will be debt-free relatively quickly. You usually can’t borrow as much with a short-term loan, and you may also be charged a higher rate of interest, but for many, it’s worth it because you’re avoiding a long-term commitment.

Secured vs unsecured small business loan

Getting a secured loan can be an option for small businesses that don’t have a good credit history. 

A secured business loan is when you use an asset you own as collateral. If you fail to repay your loan, this asset can be used as payment instead. The most common collateral used in secured business loans is property or equipment. 

Because secured loans give the lender an asset if you default on your loan, it’s less risky for them to lend to you. This can result in being offered a loan with a lower APR,  and may give you access to money if you’re initially rejected because of your credit history. 

However, most small businesses lack the assets to secure a loan, because they don’t have the collateral of equal value to the loan they’re taking out. If this is the case, you’ll need to take out an unsecured loan. 

An unsecured loan means there are no assets securing the loan, and the lender has to trust that you’ll be able to pay the loan back. This is why your credit history is important when applying for unsecured small business loans because a good credit report proves you’re a reliable borrower, increasing your chances of being accepted.

You may not be able to borrow as much with an unsecured small business loan, but the application process is usually more accessible, and your assets aren’t at risk.

Fixed vs variable small business loans

Small business loans either have a fixed or a variable APR. 

A fixed APR means your loan’s interest rates will not change during your repayment period, meaning your monthly repayments are consistently the same. This can make it much easier for a business to budget for their repayments and plan around them. 

A variable APR means the interest rate can change depending on the base rate the Bank of England sets and if it does, the amount you repay could go up or down. 

Some variable-rate small business loans offer an initial low-interest rate that lasts for a set period of time before increasing to a typical rate. This does have the potential to reduce the amount of interest you have to pay overall. 

What can you use a small business loan for?

Small business loans can be used for various business expenses. As the business owner, it’s up to you what you use the money for.  

Some common uses of small business loans include: 

  • Investing in new equipment
  • Paying rent for business premises
  • Payroll
  • Business expansion
  • Recruitment
  • Training
  • Marketing and advertising

The loan can’t be used for personal expenses or purchases, such as personal car finance or home renovations. 

It’s advised not to use a small business loan to pay off any existing debt the business may have. 

Who is eligible for a small business loan?

To get a small business loan, you and your business will have to meet the criteria set out by the provider. 

As the individual applying for a business loan, you need to be an owner or shareholder of the business, have a permanent residence in the UK, and be over 18.

Your business also needs to be legally registered and based within the UK. These criteria are the same for all types of business loans on offer. 

The additional criteria specific to small business loans are: 

  • Your business needs to have been trading for a minimum period of time, which is commonly six months for most lenders.
  • Your business cannot be older than a specified age. For the majority, the cutoff is two years. 
  • Your business will need a minimum monthly turnover that proves you can afford the repayments to the lenders. This is typically £5,000 per month. 
  • Your business can’t exceed a specific annual turnover. For most providers, this is £150,000 per annum. 
  • Your business cannot apply for a small business loan if you employ over a certain number of staff. The maximum is usually 50. 

If your small business exceeds the maximum limits for a small business loan, your company is too large for this type of funding, and you’ll have to look for other business loans and small business finance options that suit your business’s size.

What do you need to apply for a small business loan?

To apply for a small business loan, you’ll need to provide a few details about yourself and your business. 

To prove your eligibility, you’ll need to provide documentation that details your date of birth and address. A passport or driver’s license is usually accepted, but lenders may also want bank statements or utility bills as proof of address. 

You’ll also need to provide details about your business when applying for these types of loans, including its financial history, to prove your company has the capital to afford the repayments.

When applying for a small business loan you’ll need to provide a bank statement from your business bank account, information on your profits and losses, and a balance sheet. 

The credit history of your small business will also be checked. To make sure your business can build a suitable credit report, you’re going to have to have an active business bank account before you apply. 

Because your small business may be new, there’s a potential it won’t have enough credit history for the lender to accept your application for a new small business loan. If this is the case, your personal credit history may be checked instead. 

Doing this gives a personal guarantee over the loan, meaning that you’ll be responsible for paying the loan back. If you miss payments or default on the loan, it’ll be your personal credit report that suffers and not the credit report of the business.

You can apply for a small business loan by visiting a bank branch in person, although the most convenient option for many is to apply online via a provider’s website. Applying online will give you access to loans offered by online-only challenger banks and other alternative providers.

What are the advantages and disadvantages of small business loans?

Most businesses are likely to need to borrow money in the early days of trading in order to grow.  However, like any form of borrowing, if you don’t pay what you owe back on time and in full, loans have the potential to harm your business’s credit report. If this happens, you may find it difficult to borrow money in the future. 

Pros 

  • Loans provide financial certainty and stability for businesses
  • You won’t need to spend time asking for money from investors, saving you time and putting you in control of your business
  • Keeping up with repayments can help build your business’s credit history, giving you access to more credit products in the future

Cons

  • Some providers have strict eligibility criteria
  • Some monthly repayments can be a significant expense for small businesses
  • Missing a repayment can harm your business’s credit score
  • Unsecured small business loans put your assets at risk

Are there any alternatives to small business loans?

Small business loans are a good way to get money for your business quickly. However, it’s not the only small business finance option, and other products may suit your position better depending on your scenario. 

Business credit cards 

If you’re looking for a small amount of cash injection to help your business fund minor purchases, a business credit card may be a better small business finance option.

With a business credit card, you and your employees will be able to borrow funds from a card provider and then pay the balance back, typically at the end of the month. 

A business credit card usually charges higher rates of interest compared to a business loan. However, some credit cards will have a period where no interest is applied, allowing you to pay back what you’ve borrowed without paying interest. 

Peer-to-peer lending

Rather than borrowing capital from a bank or lender, you’ll be borrowing directly from an individual when using peer-to-peer lending. 

These individuals are likely to have their own criteria you’ll have to meet to borrow money from them, but they can be a little less strict. Be aware that individuals can set their own terms and may have larger APRs than what traditional banks offer.

Small business loans FAQs

Can I get a small business loan with bad credit?

Getting a small business loan with bad credit can be challenging, but certain situations make it more likely. 

If your business doesn’t have a good credit history because it’s not been trading long enough or because it’s not paid debt in the past, you may be able to have your personal credit history checked instead. 

When doing this, you become personally responsible for the loan repayments, not the business, putting your personal credit history at risk. 

If you have a poor personal credit history, too, you may be able to increase your chances of getting a small business loan by applying for a secured loan. 

A secured loan is where an asset is used as collateral to guarantee loan repayments. If you default on your loan, this asset can be taken from you and used to pay off the loan.

Will a small business loan affect my personal credit score?

Typically, a small business loan should only affect the business’s credit score. However, your personal score can be impacted if you’ve used your credit history to guarantee the loan personally. 

In this situation, if you keep up with your repayments, your credit report may improve, but if you miss payments, it may harm your credit history, making it harder for you to get loans in the future.

How long does it take to get a small business loan?

How long it takes to get a small business loan will depend on your provider and the type of loan you’re taking out. 

Typically, applying for an unsecured small business loan is quicker than applying for a secured loan, because you don’t have to include as much documentation in your application. 

It’s possible to be accepted within 24 hours, but for most providers, it could take up to a fortnight as they process your application.

Are small business loans regulated?

Typically, most business loans are unregulated, including small business loans. This is because loans only need to be regulated when given to an individual. 

The only exception to this is if a low-value small business loan of up to £25,000 is given to a sole trader. In this situation, it’s likely to be regulated because it’s considered a personal loan.

What is APR?

The annual percentage rate (APR) is a rate displayed to help you work out the cost of borrowing. It includes the interest rate and any standard charges for the loan. All finance companies have to provide a representative example and tell you the APR of the loan before you sign a credit agreement.

For example, an APR of 6% on a £50,000 loan means your interest after a year should be around 6% of £50,000, which is £3,000.

The representative APR is an advertised rate that 51% of the people approved for credit will be offered. If your credit rating is poor or you have a low income, you could pay more than the representative APR being advertised.

More business options

We compare a range of business products to help you find the right invoice financing, small business bank account, business prepaid card or commercial bridging loan for your company.