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Best Business Loans December 2024
Business loans are available for small businesses, whether you’re looking to grow your company, cover a temporary shortfall, or get a start up off the ground. Compare the pros and cons of NerdWallet’s top 10 best business loans for small businesses below.
If you want to grow your small business or invest in essential equipment, access to small business finance – on the best possible terms – is vital.
Small business loans can help you get the idea for a new venture off the ground, take your business to the next level or cover a cash-flow issue.
However, picking the best small business loan can be tricky, especially if you haven’t applied for one before. That’s why we’ve put together this list of our top 10 small business loans, as well as a detailed guide on how to apply to each business lender in our list. This guide should help you compare business loans for small businesses so you can choose a product which is right for your circumstances.
We’ve also put together a separate guide to the best business loans for start ups, taking into account the lending criteria and how much trading history you’d need to access a start-up business loan. With the right lender, you can access start up business loans without any trading history at all – for some lenders, all you need is a business plan and other relevant documents.
Meanwhile, our picks for the best overall business loans for small businesses are informed by what small business owners chose as the most important factors when comparing business loans. That includes the term length of a loan, the maximum amount a small business can borrow, and the level of customer service on offer.
The best small business loans on the market are flexible in terms of borrowing limits and terms, with great customer service and fewer early repayment or arrangement fees. If you want to compare business loans, these are some of the features to look out for.
Representative examples are based on information from the lender and are not necessarily based on the same loan amount or loan term.
Top 10 Business Loans for Small Businesses: Summary
*This table is based on the loan with the shortest maximum term, and the lowest maximum borrowable amount, out of a lender’s product offering.
** Royal Bank of Scotland (RBS) and Ulster Bank, other brands within the NatWest Group, offer similar business finance solutions to NatWest in Scotland and Northern Ireland respectively, although specific terms may vary.
This top 10 only contains business loans providers reviewed by NerdWallet UK.
Top 10 Best Small Business Loans
This top 10 business loans is from 14 business loan providers that NerdWallet evaluated and reviewed. Others are available. Find out how we use ‘best’ and our guide to ratings.
NatWest Small Business Loan
12.24%
£1,000 – £100,000
1 – 7 years
12.24% APR representative based on a loan of £10,000 repayable over 24 months at an interest rate of 11.60% per annum (fixed). Monthly repayment of £468.87. Total amount payable £11,252.85.
NerdWallet's Review Summary
With lots of variety on offer and no arrangement or early repayment fees, NatWest could interest any small business owner looking for a loan. For more details, read NerdWallet’s NatWest Business Loan Review.
NatWest loans key features:
- Business loan variety: NatWest offers specialised business loans for small businesses, green ventures and more.
- Up to £100,000 for small businesses: NatWest’s unsecured small business loan can offer new companies access to between £1,000 and £100,000.
- Small businesses repayment period of seven years: The NatWest small business loan can be paid back over one to seven years.
- Early repayment: If you manage to pay your Small Business Loan back early, you will not be met with fees.
NerdWallet's Pros & Cons
Pros
- Borrow between £1,000 and £100,000 with a small business loan.
- You can access customer service online (via the automated assistant Cora and WhatsApp or through the bank’s mobile app), as well as via telephone and at a branch.
- There are no early repayment fees if you want to pay off your small business loan before the end of your term. There are also no arrangement fees when taking out a small business loan with NatWest.
Cons
- You can only receive a maximum term of seven years for the small business loan. You can find other lenders that offer at least 10 years as standard.
- On Trustpilot, NatWest has a ‘Bad’ rating. However, it is important to note those reviews are for the brand as a whole, not just business loans.
NerdWallet has partnered with Funding Options. Check your eligibility with this lender and many others without affecting your credit score.
Lloyds Bank Small Business Loan
11.20%
£1,000 – £50,000
1 – 25 years
11.20% APR representative based on a loan of £8,000 repayable over 60 months at an interest rate of 10.65% (fixed). Monthly repayment of £172.55. Total amount payable £10,353.00.
NerdWallet's Review Summary
Lloyds Bank gives you the flexibility to pay off your business loan in full before the term ends at no extra cost, while it also offers customers wide-ranging customer service options. For more information, check out NerdWallet’s Lloyds Bank Business Loans Review.
Lloyds Bank loans key features:
- Secured or unsecured: Lloyds Bank’s offering includes both secured and unsecured business loans for small businesses.
- Early repayment: Repay your Lloyds business loan in full and ahead of schedule without worrying about incurring a penalty.
- Small businesses upper limit of £50,000: A small business can borrow between £1,000 and £50,000 with Lloyds.
- Loan term stretches to 25 years: A Lloyds small business loan can be repaid over between one and 25 years.
NerdWallet's Pros & Cons
Pros
- You can borrow for up to 25 years with a secured or unsecured small business loan.
- Small businesses can borrow between £1,000 and £50,000.
- The lender offers web-based support via a virtual assistant or through the Lloyds Business app, alongside help @LloydsBank on its X account (formerly Twitter). Face-to-face assistance is also available in Lloyds branches across England and Wales.
- You won’t incur any early repayment charges if you want to pay off your loan in full before your term ends.
Cons
- There are no Lloyds Bank branches in Scotland or Northern Ireland.
- You can only access a Lloyds small business loan if you have a turnover of less than £3 million.
- You’ll need to provide a personal guarantee if you’re applying as a limited company or limited liability partnership.
NerdWallet has partnered with Funding Options. Check your eligibility with this lender and many others without affecting your credit score.
HSBC Small Business Loan
8.60%
£1,000 – £25,000
1 – 10 years
8.60% APR representative (fixed). Based on an assumed loan amount of £13,000 over 60 months at the AIR of 8.60% p.a (fixed). Monthly repayment £265.33. Total amount payable £15,919.83.
NerdWallet's Review Summary
HSBC’s small business loan options include a fixed-rate Small Business loan of up to £25,000, and a fixed- or variable rate Flexible Business Loan, for borrowing over £25,000. You could also be eligible for cashback on your loan if you use it for environmental purposes. To find out more, read NerdWallet’s HSBC Business Loans Review.
HSBC business loans key features:
- Small businesses borrow up to £25,000: HSBC has a small business option starting at £1,000 and extending up to £25,000. For higher amounts, businesses can opt for the Flexible Business Loan.
- Terms of 10 years for Small Business Loans: A Small Business Loan can be repaid over between 12 months and 10 years, while the Flexible Business Loan can go up to 20 years.
- Capital repayment holidays: Taking a capital repayment holiday when you first get your Small or Flexible Business Loan can offer you more flexibility, though it will mean you pay more in interest overall.
- Green SME Cashback Fund: For business loans going towards environmental projects, business owners can qualify for cashback on the amount they borrow.
NerdWallet's Pros & Cons
Pros
- You can borrow up to £10,000 (HSBC Kinetic Small Business Loan), up to £25,000 (Small Business Loan) or a potentially unlimited amount (Flexible Business Loan).
- You can borrow over a term of up to 10 years (Small Business Loan and HSBC Kinetic Small Business Loan) or up to 20 years (Flexible Business Loan).
- Access to customer service is via the lender’s website, phone helpline and mobile app, as well as face-to-face support in a branch.
- There is no arrangement fee for the HSBC Small Business Loan.
Cons
- The Small Business Loan has a lower maximum level of borrowing than comparable products from other traditional banks.
- Although you can make overpayments without a fee, you will have to pay an interest charge for early repayment in full for the Small Business Loan. You may also have to pay a prepayment fee and an early repayment fee for the Flexible Business Loan.
- Borrowers seeking to secure HSBC’s Flexible Business Loan product may have to pay arrangement fees.
Barclays Unsecured Business Loan
9.90%
£1,000 – £100,000
1 – 10 years
9.90% APR representative based on a loan of £12,000 repayable over 72 months at an interest rate of 9.45% per annum (fixed). Monthly repayment of £219.00. Total amount payable £15,768.00.
NerdWallet's Review Summary
Barclays offers a variety of borrowing solutions for businesses at different stages of growth and across a variety of sectors. Options include unsecured and secured business loans, as well as commercial mortgages, business overdrafts, asset finance, invoice finance, and its Barclaycard for business credit card. For further information, read NerdWallet’s Barclays Business Loans Review.
Barclays business loans key features:
- Choices: Barclays offers a range of borrowing options to suit different business needs, including secured and unsecured business loans.
- Flexible term lengths: There is scope for adjustment depending on how long you want to borrow for.
- Repayment holidays: In some cases, Barclays will allow businesses to take a six-month repayment holiday at the start of an unsecured business loan term. Interest will continue to accrue on the loan and is calculated within future repayments.
- Rates options: Borrowers can choose between fixed- and variable interest rates.
NerdWallet's Pros & Cons
Pros
- Businesses can borrow from one to 10 years with an unsecured loan.
- There is a wide range of customer service options, including social media, via its app or ‘help and support’ on your online account.
- Barclays has branches in England, Wales, Scotland and Northern Ireland.
- You can borrow up to £100,000 with an unsecured loan, subject to status.
Cons
- General business phone lines are only open five days a week.
- More information may be required to apply for a Barclays business loan online if you are not an existing customer.
- Unsecured loans are not available for all industries, but Barclays does not specify which industries may be excluded on its website.
This product may be one of a range offered by this provider. Always check terms & conditions for suitability before applying.
Funding Circle Business Loan
Available on application
£10,000 – £750,000
6 months – 6 years
Available on application
NerdWallet's Review Summary
With an unsecured Funding Circle small business loan, you can borrow between £10,000 and £750,000 over six months to six years. Funding Circle is not a direct lender but a lending platform, using institutional investors to fulfil loan requests. Find out more by reading NerdWallet’s Funding Circle Business Loans Review.
Funding Circle business loans key features:
- Borrow as much as £750,000: Funding Circle’s unsecured small business loans can stretch from £10,000 to £750,000.
- Terms vary: Funding Circle offers loan terms that stretch from a minimum of six months to a maximum of six years.
- Early repayment: Borrowers will not be charged for repaying their Funding Circle business loan in full early.
- Personal guarantees: Borrowers will need to provide a personal guarantee to obtain a Funding Circle business loan.
NerdWallet's Pros & Cons
Pros
- You can borrow up to £750,000 with an unsecured fixed-rate Funding Circle small business loan.
- The minimum term length is just six months, meaning you can pay your loan off quickly if you wish.
- There are no early repayment fees for paying your loan off in full before the end of your term.
- The customer service offered by Funding Circle has earned the company a very high Trustpilot rating, with particular praise directed at the loan application process.
Cons
- The maximum term length is six years, which is shorter than many traditional lenders.
- While you don’t need to provide an asset as a security to get a Funding Circle business loan, you will be asked to give a personal guarantee.
- While Funding Circle’s customer service has won praise from customers, the company offers no branch or app access.
This product may be one of a range offered by this provider. Always check terms & conditions for suitability before applying.
Fleximize Business Loan
Available on application
£5,000 – £500,000
1 – 4 years
Available on application
NerdWallet's Review Summary
Direct lender Fleximize offers customers unsecured business loans up to £250,000 and secured loans up to £500,000. Businesses must have a minimum monthly turnover of £5,000 to apply. To find out more, read NerdWallet’s Fleximize Business Loans Review.
Fleximize business loans key features:
- Loan variety: In the Flexiloan and Flexiloan Lite, Fleximize caters to established organisations and newer businesses.
- Borrow as much as £500,000: A Fleximize loan gives you the option of borrowing a maximum of £500,000 (or £250,000 for unsecured loans).
- Short-term focus: Terms are between three and 12 months for the Flexiloan Lite, or 12 to 48 months for its Flexiloan. However, this is capped at 36 months for unsecured loans.
- No early repayment fees: Borrowers can overpay their loan, or pay it back in full before the term ends, without worrying about fees.
NerdWallet's Pros & Cons
Pros
- With Fleximize, you can borrow between £5,000 and £500,000, with unsecured loans capped at £250,000.
- Fleximize offers short- to medium-term lending, with term lengths of three to 12 months for Flexiloan Lite, and 12 to 48 months for its standard Flexiloan, capped at 36 months for unsecured loans.
- Fleximize offers business loans for newer organisations that have only been trading for six months with its Flexiloan Lite option.
- You can repay your Fleximize business loan early at no extra cost, and you will only pay interest for the time you’ve actually had the loan.
Cons
- Fleximize has limited remote customer service options, with only an online contact form and phone line only on weekdays. You can visit the company’s HQ, but this is just one location, in Ipswich.
- All Fleximize products, including secured loans, require a personal guarantee from at least one director or shareholder. Secured loans also require an equitable charge, which means the lender may claim equity in a property if the borrower defaults on the loan.
- You can only borrow a maximum of £250,000 on an unsecured Flexiloan or Flexiloan Lite if you are based in Scotland or Northern Ireland.
- Sole trader and non-limited partnership loans start at over £25,000.
- Non-homeowners can borrow a maximum of £20,000, and only as long as the business has been trading for over 36 months.
NerdWallet has partnered with Funding Options. Check your eligibility with this lender and many others without affecting your credit score.
Iwoca Flexi-Loan
49.0%
£1,000 – £1,000,000
1 day – 2 years
49% APR representative based on a loan of £10,000 for 12 months with an interest rate of 40% p.a. (variable). Total amount payable £12,294.
NerdWallet's Review Summary
iwoca gives business access to flexible loans that suit a range of purposes. This dedicated business loans provider currently offers one type of business loan: the Flexi-Loan. Find out more by reading NerdWallet’s iwoca Business Loans Review.
iwoca business loans key features:
- Borrow up to £1 million: Small businesses can borrow from £1,000 to £1 million with iwoca.
- Short-term flexibility: You can pay back an iwoca business loan over term lengths from one day to two years.
- Early repayment: You can overpay or settle early at any point with no fees.
- Not for sole traders: Only limited companies, limited liability partnerships and ordinary partnerships can apply for iwoca business loans.
NerdWallet's Pros & Cons
Pros
- You can borrow up to £1 million with the Flexi-Loan.
- With loan terms of one day to two years, iwoca may be suitable if you are looking for short-term borrowing.
- There are no early repayment fees.
- Phone and online customer service and support is available.
Cons
- All iwoca Flexi-Loans come with a variable interest rate.
- Sole traders are not eligible for an iwoca business loan.
- Limited companies will be required to provide a personal guarantee, typically from one of the company directors.
- It has no app, so there is no app-based customer service.
- It has no branches, so there is no face-to-face customer service (though you can visit its headquarters in London).
This product may be one of a range offered by this provider. Always check terms & conditions for suitability before applying.
Starling Bank Business Loans
Available on application
£25,001 – £250,000
1 – 6 years
Available on application
NerdWallet's Review Summary
Starling Bank offers unsecured business loans of between £25,001 and £250,000 to small- and medium-sized enterprises (SMEs) in the UK. Businesses need to operate as either a limited company or limited liability partnership in order to be eligible, and they must also have been trading for at least 24 months. Learn more by reading NerdWallet’s Starling Business Loans Review.
Starling business loans key features:
- Small businesses can borrow up to £250,000: Starling business loans start at £25,001 and can go up to £250,000.
- Variable loan terms: Starling business loan terms span from 12 to 72 months.
- Early repayment: Starling borrowers are not penalised if they repay their loan early.
- Not for sole traders: Starling’s loans are only available for limited liability companies and partnerships.
NerdWallet's Pros & Cons
Pros
- Your small business can borrow a maximum of £250,000 with a Starling unsecured loan.
- Businesses can borrow for between one and six years with a Starling unsecured business loan.
- Starling provides 24/7 customer service through live chat on the app, email and telephone support, while also responding to queries on its X account (formerly Twitter).
- There are no early repayment fees if you want to repay your loan before the term ends.
Cons
- Starling business loans are not available to sole traders.
- You are required to provide a personal guarantee when taking out a Starling business loan.
- At £25,001, the minimum amount you can borrow with a Starling business loan is much higher than most other lenders.
- There is no face-to-face support as Starling has no branches.
- If you are successful in your application, you will need to open a Starling business account and make it your primary business banking service.
NerdWallet has partnered with Funding Options. Check your eligibility with this lender and many others without affecting your credit score.
Capify Small Business Loans
Available on application
£5,000 – £750,000
3 – 18 months
Available on application
NerdWallet's Review Summary
With Capify, eligible limited companies can borrow between £5,000 and £750,000, while sole traders who are also homeowners can borrow over £50,000. Find out more by reading NerdWallet’s Capify Business Loans Review.
Capify business loans key features:
- Up to £750,000 for small businesses: Capify lending products span £5,000 to £750,000, which is available either as both a small business loan or a merchant cash advance.
- Short loan terms: Business loans from Capify can be repaid across three to 18 months.
- Repay it daily: A Capify small business loan can be paid off with daily repayments over the length of your loan term.
- Turnover requirements: In order to successfully apply, your business will need to have been trading for at least a year and have a minimum monthly turnover of £10,000 for a small business loan and £20,000 in monthly credit or debit card turnover (with at least six months’ trading) for a merchant cash advance.
NerdWallet's Pros & Cons
Pros
- You can borrow up to £750,000 with a Capify small business loan or merchant cash advance.
- Business loans offer short-term borrowing over three to 18 months, broken into small daily repayments.
- You have access to over-the-phone customer service.
- There are no early repayment fees.
- Capify considers all credit profiles and looks at different lending criteria to a traditional bank.
Cons
- The majority owner of the business is required to provide a personal guarantee when taking out a loan.
- There are minimum monthly turnover requirements for both the Capify small business loan and merchant cash advance.
- You may be subject to processing, origination and monthly service fees when taking out a Capify business loan.
- There is no app-based customer service or branch support. Web-based support also directs users to the phone or a contact form.
This product may be one of a range offered by this provider. Always check terms & conditions for suitability before applying.
Cubefunder Business Loan
Available on application
£5,000 – £100,000
3 – 12 months
Available on application
NerdWallet's Review Summary
Cubefunder is a direct lender which professes to place a greater emphasis on the human side of business lending. As part of this ethos, Cubefunder says it will judge businesses on more than just their credit score and pledges to visit your business, in person, while making a decision on whether to approve your application.
With term lengths of three to 12 months, no early repayment fees, and daily or weekly repayment schedules, Cubefunder may appeal to small businesses looking for short-term finance. However, this lender may be less suited to businesses hoping to spread the costs of borrowing over a longer time frame. You should also be aware that Cubefunder asks for personal guarantees from new customers.
For more information, you can always turn to NerdWallet’s Cubefunder business loan review.
Cubefunder business loans key features:
- Different borrowing limits for sole traders and limited companies: Cubefunder’s Unsecured Business Loan is for limited companies only, with businesses able to borrow between £5,000 and £100,000. For sole traders, Cubefunder offers a smaller business loan for borrowing between £2,500 and £7,500.
- Short-term borrowing: Cubefunder business loans can be repaid over three to 12 months.
- Flexible repayment plan: You can choose to pay your loan back in daily or weekly instalments.
- Fee-free repayment: Cubefunder doesn’t charge fees for repaying your loan early.
NerdWallet's Pros & Cons
Pros:
- Cubefunder offers a maximum unsecured loan amount of £100,000.
- Cubefunder business loans are short-term, over a maximum of 12 months, and you can choose to repay your loan on a daily or weekly basis.
- As long as you pay the full amount in the agreed period, there are no individual late payment fees.
- There are no early repayment fees if you want to pay off your Cubefunder business loan before the term ends.
Cons:
- Cubefunder business loans are only available for businesses registered in England and Wales.
- Most products are only available to limited companies, with sole traders eligible for a much smaller loan.
- If you are a new customer, you are required to provide a personal guarantee when taking out a loan.
- You can only contact Cubefunder over the phone or by email. There is no mobile app, live chat feature or access at a branch.
This product may be one of a range offered by this provider. Always check terms & conditions for suitability before applying.
This top 10 only contains business loans providers reviewed by NerdWallet UK.
Business loan news
Firms in South East England Lead Business Borrowing Charge
The British Business Bank has found that across the first half of 2024, the number of approved business bank loans and business overdrafts increased by 21% compared to the same period last year.
The bank’s 2024 Nations and Regions Tracker, which analyses the state of business finance in every corner of Great Britain, also found that the value of approved loans and overdrafts for small and medium-sized businesses rose by 8% in the first half of 2024.
Almost all nations and regions of Great Britain saw a rise in both the number and value of SME loan and overdraft approvals in the first half of 2024.
The only region where both figures were down was the North East, where the volume of SME finance plummeted by 24% and the value of SME finance dipped by 5%.
Much of this year’s borrowing uptick was driven by businesses based in the South East of England.
Last year, business bank loan and overdraft approvals rose by 10% in the South East, even as the nationwide number of approvals fell by 9% – highlighting the vast regional disparities when it comes to business borrowing.
What is a business loan?
A business loan is a form of finance that can be used to help support and expand your small business.
As with personal loans, business loans involve borrowing a sum of money and paying it back, with interest.
One of the most important differences between personal loans and business loans is that with a personal loan, you will be personally liable for repaying the amount you have borrowed.
With a business loan, as long as the appropriate company structure is in place, that responsibility falls to the business instead. This will not be the case, however, if you are a sole trader, or you have secured your business loan with a personal guarantee.
You can also typically borrow more through a business loan. What’s more, the interest payments on your business loan may be tax deductible unlike payments on a personal loan.
Are business loans regulated?
Most forms of business lending are unregulated. However, if the business loan is £25,000 or less, and is for certain business types, such as sole traders, it may be regulated by the Financial Conduct Authority (FCA).
You should research the form of business finance you are interested in, and the lenders involved, to check if they are regulated ahead of applying.
Can start-up businesses get business loans?
There is no official definition of what makes a business a start up, although it’s widely agreed that a start-up business is a new venture that hasn’t been trading for a long time.
By the same token, there is no official definition of what constitutes a start up business loan.
Some lenders can be wary of lending money to new businesses, as start ups don’t have much or any trading history to go off, and the business may be too new to have a strong business credit score. All this means lenders can view start ups as a riskier bet than a more established business with a proven track record of paying back its debts.
However, while some business lenders make it a condition that a business must have been trading for a certain amount of time before being considered for a loan, there are also business loan providers that are willing to lend to new businesses. Check out our guide to the best start-up business loans for more information.
Business loan pros and cons
Taking out a business loan could provide your small business with the capital you need to grow and expand, but be warned that there are also disadvantages to business loans.
Advantages of business loans
- Using a business loan to fund the growth of your organisation means you’ll be able to retain ownership of the business, rather than giving up equity.
- Business loans can help with cash flow, covering temporary and unanticipated shortfalls and allowing your business to pounce on unexpected opportunities for growth.
- So long as you repay your loan in full and on time, taking out a business loan could boost your business credit score. And the better your business credit score, the easier you’ll find it to access finance on favourable terms down the line.
Disadvantages of business loans
- Business loans must be repaid with interest – unlike grants, for example, which typically don’t have to be repaid. The interest on a business loan means there will always be a cost of borrowing, and your business will always pay back more than it borrowed.
- You may have to provide collateral – like personal or business property – before a lender will let you access a business loan.
- You may be required to provide a personal guarantee before you can access loan products from certain providers.
- If you fail to meet the repayment terms of a loan, your business credit score may suffer. This may make it harder to secure business loans on favourable terms in the future.
- If you default on your business loan, you may face additional charges.
How to apply for a business loan for your small business
Applying for a business loan may be easier than you think. Just follow the steps below.
- Decide how much you want to borrow and for how long. Once you’ve decided a business loan is the right option for you, it is important to consider the balance between what you can afford and what you need to help your business.
- Compare business loans and lenders to find the right fit for your small business. Shopping around and comparing business loans is an important step. Take time to research and compare the various terms, conditions, and requirements of business lenders to make sure the loan you end up with suits the needs of your small business.
- Submit your application and all relevant documents. This may include how long you have been trading, details about your finances, and what you want the money for.
- Wait to hear back. It can take a couple of hours to a matter of weeks to hear back about your business loan application, depending on your financial circumstances and the lender in question.
» MORE: How to get a business loan
Who is eligible for a business loan?
In theory, anyone who owns a business is eligible for a business loan, so sole traders, small and medium-sized enterprises (SMEs) and large businesses may all be eligible to apply for a business loan in the UK. However, lenders will set their own criteria and determine your eligibility for a loan based on information such as:
- how long your business has been trading
- whether your business is based in the UK
- your annual turnover
- your business and personal credit history
» MORE: How do business loans work?
Types of business loans for small businesses
There are two main types of business loans:
Unsecured business loans
Unsecured business loans do not require the use of company assets as security, though you may be required to provide a personal guarantee. These types of loans tend to have higher interest rates because there is a greater risk of the lender losing money if you can’t pay off what you owe. Unsecured business loans also require a good financial history and credit rating as evidence that the business will be able to repay the loan as there is no other guarantee in place.
Secured business loans
Secured business loans require that you put down an asset such as property as security. Secured loans often come with lower interest rates than unsecured loans as they represent less risk for the lender. They may also give you access to a larger loan amount over a longer term. However, secured loans come with the added risk that you could lose the asset you put up as security if you miss the payments.
» MORE: Types of business loans
How to compare business loans for small businesses
There are a number of factors to bear in mind to help you compare business loans. It’s important to consider which loan is going to be right for your small business. Factors to compare include the interest rate on the loan, the amount you can borrow, and any fees for taking out the loan.
Before you apply for a business loan for your small business, you should consider whether it is the best fit for you and your organisation. There are a few key questions you can ask yourself to help you compare business loan providers and ultimately decide whether a business loan could be right for your small business.
- How much do I want to borrow?
- When do I need to repay the loan?
- How much can I afford to repay each month?
- Am I struggling with unpaid invoices?
- Do I hold equity in a property?
- Do I need the loan to buy a specific valuable asset?
- What’s my personal and business credit rating like?
- How long has my business been operating?
- Do I need a lump sum?
Tips for maximising your business loan
Once you have secured a business loan for your small business, you need to make sure you use it effectively. Below are some tips on how you can maximise your business loan:
- Create tangible targets: To ensure you use your funds correctly and have something to show for it the other side, it is wise to create specific goals you want to achieve with the money you receive through the loan. Ideally, you would come up with a plan before you apply for finance.
- Detail exactly what you will spend the money on: Once you have an idea of what you want to achieve, set out exactly what the loan will be spent on, over a concrete time frame. This will help lay a path to achieving your targets.
- Consider a separate bank account: Depending on what you intend the loan to be used for, you may want to consider opening a dedicated business bank account for the funds. This will make it easier for you to review your finances and see how much you have left at any given moment.
- Regularly review your finances: The funds being in your account is only the beginning of managing your loan. Regularly review how much you have left, what it has been spent on, and how that compares to the plan you came up with before you applied. It won’t always be possible to keep on target; unexpected expenses are part and parcel of running a business. However, tracking your spending will mean you hopefully won’t veer off course.
» MORE: Try our business loan calculator
Alternatives to business loans
There are many funding alternatives to consider if you’re unsure about whether a business loan is the right option for your small business. Some of these include:
Some banks offer access to a business overdraft. This is a short-term line of credit, which may be able to provide your business with greater financial flexibility. If you are faced with an unexpected cost, for example, then an overdraft could take pressure off your cash flow in the short-term.
Just be warned that your business will be charged interest on the amount you are overdrawn, and you may also be charged a fee for using the overdraft. Your bank can also demand that you repay the overdraft at any time.
If you ask your bank, you may be able to increase your overdraft amount.
Similarly to business overdrafts, business credit cards can provide greater financial flexibility for a small business. A key advantage of business credit cards is that they give you the option to spread the cost of your purchases, which can help with cash flow.
There are a few different types of business credit cards to choose from, including rewards business credit cards, foreign use business credit cards, and balance transfer business credit cards. You should shop around and look for the card best suited to your business needs.
Business credit cards can also help to build your business credit score, and having a strong business credit score can help your business access finance on more favourable terms down the line.
However, if you do not pay off your business credit card in full each month, you will be charged interest, making the cost of borrowing greater in the long term.
Merchant cash advances are a funding option for businesses that take card payments. Unlike some small business loans or start-up loans, firms can generally access merchant cash advances without needing to provide assets as security.
With a merchant cash advance, a lender will provide your business with an up-front sum of money – to cover a short-term shortfall or cash-flow issue, for example.
A percentage of your business card sales income will then be deducted daily, weekly, or monthly and be sent to the lender until the initial loan is repaid. Be warned that your business will be charged interest for a merchant cash advance and will also have to pay a fee for this service.
Invoice financing is a way of immediately releasing some of the money tied up in your unpaid invoices. Again, this offers your business greater financial flexibility and access to near-immediate capital.
With invoice financing, a lender will use your unpaid invoices as security for a loan, with some loan approvals taking less than 24 hours. This means invoice financing can provide quick access to a portion of the money you are owed by your customers or clients.
There are different types of invoice financing arrangements, including invoice factoring (where the lender takes on the responsibility for managing your sales ledger and collecting payments from your customers) and invoice discounting (where your business keeps control of customer payments).
Make sure you understand all the options available to your business and think about the financing arrangement which is the best fit for your circumstances.
Asset finance is a versatile source of funding, and it could help your small business cover the cost of business-critical assets.
Either through a leasing agreement or a hire purchase arrangement, asset financing can ease the cash-flow pressure on businesses by providing a way of spreading the cost of major equipment acquisitions or upgrades – the kind of spending which would usually put a major dent in your cash flow.
Just bear in mind that fees and interest payments are likely to apply if you use asset finance to finance the cost of buying assets for your small business.
The key difference between a grant and a loan is that a grant usually doesn’t have to be paid back. For this reason, small business grants can be very competitive.
There are many grants available to UK small businesses, some of which are available based on the sector, location, or age of your business.
You may be able to access small business grants specifically for businesses based in England, Northern Ireland, Scotland or Wales, as well as small business grants for women.
Small business grants may come with more stringent requirements or eligibility criteria than small business loans, so make sure you do your research before applying.
It may sound like a slightly unconventional way to get a new business idea off the ground, but a crowdfunding campaign is another option for securing small business funding.
Crowdfunding generally involves securing small amounts of funding from many sources – typically lots of individuals – who might choose to back a business idea in return for rewards, like early product access or equity in your business. Crowdfunding campaigns typically take place online through dedicated websites.
Angel investors are the largest source of investment in UK start ups and small businesses. Angel investors are typically successful or wealthy individuals looking to use their own money to invest in a young business in return for a minority stake.
Think Dragon’s Den: many of the show’s ‘dragons’ are real-life angel investors.
In addition to providing you with seed funding, an angel investor will generally take a hands-on approach to helping you grow your business – for example, by leaning on their own connections or mentoring you on your business journey.
» MORE: How to get start up funding for a new business in the UK
Government small business loans
Although the UK government doesn’t offer small business loans directly, there is an indirect process through which the government seeks to support small and new businesses in the UK.
The British Business Bank is an independent lender founded in 2014 and owned by the Department for Business and Trade. The stated aim of the British Business Bank is to offer an alternative to the business finance market, which can be tough on small and new enterprises.
The British Business Bank runs the Growth Guarantee Scheme, the successor to the Recovery Loans Scheme. This is a funding scheme designed to support UK small businesses as they invest and grow, offering small business loans of up to £2 million, repayable from three months up to six years. These small business loans are 70% backed by a government guarantee.
Small business owners looking for finance can also take advantage of the Bank Referral Scheme. This helps businesses that are struggling to find a lender by ensuring you will be referred to another, more viable lender if a participating bank rejects your business loan application.
Among other schemes, the British Business Bank also offers Start Up Loans for new businesses, with start ups able to borrow between £500 and £25,000, payable over one to five years, at a fixed interest rate of 6% per annum. Support and mentorship is available as part of the loan.
Business Loans Methodology
NerdWallet evaluated and reviewed 14 business loans providers (a mix of traditional and online-only lenders). Collectively, these represent the largest lenders by assets and internet search traffic, along with notable or emerging players in the industry.
We considered more than 10 data points for each business loan provider, based on the criteria that matter most to users, scoring them on flexibility of term-length, customer service, and amounts borrowable, among other factors. This information was gathered from each financial institution’s website and company representatives. In addition, we regularly add new brands and our editorial team reviews them against the same criteria for consistency and accuracy.
Using the same data across all products and features we were able to create star ratings on a scale of one to five stars, where a one-star score represents ‘poor’ and a five-star score represents ‘excellent’. Please read more on our business loans methodology.
Frequently asked questions about business loans
A business loan is a source of finance for companies that need money for a variety of purposes. Below are some of the reasons you may consider getting a business loan.
- Cash flow: A business loan could help improve your business’s cash flow. However, you will need to have a strategic plan in place to overcome future cash-flow issues.
- Business growth: The money you borrow could help your business expand.
- Purchasing power: Business loans can help you buy new equipment, increase inventory or invest in office space.
- Recruitment: Money borrowed through a business loan may be used to invest in recruitment and hire new employees.
» MORE: Why do businesses need finance?
There is no fixed personal or business credit score you need in order to apply for a business loan. However, a strong credit score could increase your chances of success and potentially give you access to lower interest rates, although it isn’t the only factor lenders will consider.
For example, credit reference agency Experian’s business credit score ranges between 0 and 100. The closer your score is to 100, the less of a risk you are likely to be seen as by lenders, and therefore the better your chances are of getting a business loan.
However, bear in mind that your credit score isn’t the only factor that lenders will consider when deciding whether to offer you a business loan.
While it is not always a requirement, you may find that many lenders will not consider you for a business loan if you do not also have a business bank account. It can also make the application process simpler if you do.
In general, business bank accounts can make it easier to manage your finances and ensure that there is a clear separation between your personal and business funds. This is especially important when it comes to managing a business loan.
Generally speaking, it can be trickier for new businesses to access traditional business loans.
Lenders may take into account the credit history of the business and may want to see more evidence that the business will be successful and will be able to repay its debt. With a new business, proving this can be a challenge.
Some lenders also require that a business has been trading for a certain length of time – sometimes a year or more – before even considering that business for a loan.However, it is possible to get a business loan for a new company – it may just take a bit more shopping around until you find the right lender. This is where our guide to the best business loans for new businesses might help.
Different lenders will have their own borrowing limits, and some may not have an advertised hard cap on how much they’re willing to lend. In theory, and depending on your business circumstances, some lenders will allow you to borrow multiple millions of pounds with a secured loan.
With unsecured loans, borrowing limits are likely to be lower. With some of the unsecured small business loans in our sample, you could borrow £50,000 or £100,000. Other lenders offer unsecured loans of up to £500,000, depending on the circumstances and profitability of your business.
Using a business loan calculator could help you understand the affordability of business borrowing. Check out NerdWallet’s business loan calculator to get a sense of what size loan your business could afford.
The terms of a small business loan will depend greatly on the lender.
As a rough guide, some lenders may allow you to borrow money with a small business loan for six, seven, or even ten years.
With other lenders, however, borrowing times are much shorter. Some small businesses loans must be repaid within two years or less.
Some lenders allow you to repay your business loan early without incurring any fees.
If you think you’ll be able to repay your business loan early, make sure you look into early repayment fees before applying for finance. Otherwise, you may be caught out by this unexpected cost.
Some lenders offer very quick decisions when you apply for a small business loan.
While other lenders may take longer to approve your application, it’s possible to get a decision from certain small business loan providers in just 24 hours.
If you are the director of a limited company, you are allowed to lend money to your own business. By the same token, directors can also borrow money from their businesses.
There are various rules around director’s loans, which you can read in more detail on the Gov.uk website.
If you lend your company money, the company will not need to pay corporation tax on this sum. However, if you charge interest on any money you lend your company, then the loan will count as both a business expense for your company and a source of personal income for you – meaning you must report it on your self-assessment tax return.
Review methodology
At NerdWallet UK, we base our reviews and our ‘Best’ pages on the results of surveys we undertook about what was important to people who use these products. This allows us to look at products impartially of any commercial arrangements we have and fairly rate the products on the same set of criteria.
Best means our ‘Best’ and is based only on what products we have aligned to our surveys, which form the basis of our reviews and ratings. This means that there will be other products on the market that we have not included in our ‘Best’ pages. Best does not mean it’s best for you, nor does it mean the ‘cheapest’.
Our reviews may display lenders’ rates. This additional information has not been included in our evaluations but is still very important when choosing a product. Rates offered can depend on circumstances, amount and term. Always check details before proceeding with any financial product.
Product details reflect the information that was available at that time but may have changed since. We strive to give you a review on as many products as possible, but there will be products not included on the market. The review is our opinion, but it does not constitute advice, recommendation or suitability for your financial circumstances.
While we try to provide you with accurate information, the providers can change the terms of their products at any time, therefore it is advisable to check the terms before you proceed.
You can view our full review methodology here.
Dive even deeper
9 Types of Business Loans
by Rhiannon Philps
A Quick Guide to Online Business Loans
by Holly Bennett