Business Loans: A Complete UK Guide to Rates, Types and Eligibility

How Business Loans Work

You take a business loan when you need a lump sum and can repay it in instalments over a fixed term. Interest runs on the full balance from day one, which suits a one-off cost — equipment, a fit-out, an expansion — when your cash flow can carry the repayments.

A term loan isn’t your only option, though.

You can instead use a revolving facility or overdraft to draw, repay, and redraw without reapplying, paying only for what you use. We see owners with lumpy cash flow lean this way, because it tracks the money coming in instead of fighting it.

Look past the headline rate before you judge a loan. Arrangement fees, a completion fee, and a personal guarantee from the directors all sit alongside it, and we weigh those together when we rate value. The rate alone never tells you the real cost.

The Main Types of Business Loan

Most borrowing comes down to five core types, and the right one depends on the purpose, the repayment shape, and your cash flow. Term loans and revolving credit cover the majority; the rest fit a specific need.

You take a term loan for a known, one-off cost: a fixed sum over one to ten years, repaid monthly, secured or unsecured. Funding Circle is a competitive unsecured example, lending £10,000 to £750,000 from 6.9% APR to established limited companies.

With a merchant cash advance, you repay a fixed slice of daily card takings, so a quiet week costs you less than a busy one. Capify works this way, considers adverse credit, and funds from £5,000 where high-street lenders decline.

Invoice finance advances 85-90% of an unpaid invoice’s value, releasing cash before your customer settles, with the balance (minus fees) paid when they do. It fits B2B firms whose only real problem is slow-paying clients.

You should check government-backed lending before you take commercial terms, through Start Up Loans for early-stage founders and the Growth Guarantee Scheme for established firms. We cover both below, because the terms can beat the open market.

Business Loan Interest Rates in 2026

Your rate sits on top of a Bank of England base rate of 3.75%, held in an 8-1 vote on 30 April 2026, with the next decision due 18 June.

A variable loan moves with that base rate plus a lender margin, so your repayment and your cash flow shift whenever the rate does.

Your rate then splits sharply by product and security. Secured asset-backed lending runs at 6-10% APR; unsecured high-street loans sit in an 8-15% representative APR band; and alternative lenders price unsecured borrowing from 15% up to 50%.

Speed and access cost you rate.

We rate Funding Circle from 6.9% APR and iwoca’s representative 49% as both fair — for different borrowers. The first rewards two years of clean trading; the second prices in lending to a business only a few months old.

You will see a merchant cash advance quoted as a factor rate, not an APR. Advance £10,000 at a factor of 1.3 and you repay £13,000 in total, however long it takes — easy to check before you sign, even when the APR is hard to read.

Secured vs Unsecured Business Loans

You are weighing rate against risk when you choose between secured and unsecured borrowing. Pledge an asset and the lender risk falls, so your rate falls — but a default can cost you the asset.

Secured loans run at 6-10% APR, backed by commercial property, equipment, or stock, with terms up to 25 years on property. Lenders cap it at 70-75% of the asset value; we treat that as the realistic ceiling.

You pay more for unsecured borrowing — 15-50% from alternative lenders — but you get speed. With no valuation or legal charge to register, unsecured funds can land within 24 hours, while your supplier waits weeks for a secured deal to clear surveys and paperwork.

You should watch the label, though: most unsecured lending to a limited company still needs a personal guarantee. So “unsecured” protects your business assets and cash flow, not your personal ones — we explain what that exposes below.

Government-Backed Business Loans

You should check two British Business Bank schemes before you take commercial terms. A Start Up Loan lends each founder up to £25,000 (a £100,000 cap per business) at a fixed 7.5%, repaid over 1-5 years, with 12 months of free mentoring and no early-repayment fee.

That 7.5% rate rose from 6% on 6 April 2026, and the trading-age limit widened to five years at the same time, up from three. The loan is personal to you, not secured on business assets.

You can also use the Growth Guarantee Scheme, the Recovery Loan Scheme’s successor, launched 1 July 2024 through accredited lenders. It supports facilities up to £2 million for groups turning over under £45 million, across term loans, overdrafts, invoice and asset finance.

Read the guarantee before you lean on it: it backs the lender 70%, not you. You stay 100% liable for the debt, and it still draws on your cash flow every month.

Who Qualifies: Eligibility and Credit

Your eligibility splits along the same line as your rate. High-street banks want 24 months of trading and filed accounts; alternative lenders like iwoca and Capify approve much younger businesses — iwoca even considers startups — reading real-time cash flow, which we trust more for a young business.

Your personal credit file matters even when a limited company is the borrower. Lenders check the directors and significant shareholders, and one CCJ or default on a director can push a prime application into higher-cost territory.

You need real turnover for revenue-based lenders. A merchant cash advance provider wants at least £10,000 a month in card takings — £120,000 a year — before it will look at you.

You face the steepest climb as a pure startup, with no trading record to prove you can service the debt. The realistic routes are a lender that assesses forecasts, or the Start Up Loans scheme built for pre-revenue founders.

Fees and the True Cost of a Business Loan

You should price the fees alongside the rate, because we find they shift the real cost more than owners expect. Arrangement and completion fees commonly run 0.5% to 2% of the loan, though some high-street banks waive them on smaller tiers.

Alternative lenders often add 1-3% on top of interest as a completion fee — Funding Circle does, and Capify stacks a processing fee, an origination fee, and a monthly service charge. Add those up before you compare a fintech against a bank.

You should watch the fees — that’s where a cheap loan stops being cheap.

You can settle early for nothing with iwoca and Funding Circle, so clearing the balance when your cash flow allows saves you the remaining interest. Other lenders charge a penalty — read the early-settlement clause before you sign.

If you use a broker, the lender usually pays their commission and it’s baked into your rate, so ask how they’re paid. It’s a fair question, and a good one to ask early.

Personal Guarantees and Your Liability

You should treat a personal guarantee as a headline term, not small print. It’s the clause that most often catches directors out, and lenders almost always require one on unsecured lending to a limited company.

You create a separate, binding promise to repay the debt from your own money when you sign one. It survives the company — if the business is liquidated, the guarantee doesn’t die with it, and the lender can pursue your home, savings, and future earnings.

If several directors sign, your liability is joint and several. That phrase matters: the lender can chase any one of you for the whole balance — usually whoever has the most home equity — not an even split.

You can size the exposure, though you can’t remove it. Some lenders cap the guarantee — Funding Circle at twice the initial loan on its flexible facilities — and insurance covers part of it, so a weak quarter for your cash flow won’t put your home on the line.

Documents You Need to Apply

You can speed up the application by having the standard pack ready. Lenders want your last six months of business bank statements to read your cash flow, increasingly pulled straight through open banking rather than uploaded by hand.

Lenders also require your most recent filed accounts. If those figures are more than nine months old when you apply, expect a request for current management accounts — a live profit-and-loss and balance sheet — to bridge the gap.

You should have recent VAT returns to hand, because lenders cross-check them against the turnover you’ve stated. The numbers on your application need to match your filings, or the underwriter slows down.

You carry one extra ask as a startup. Every director and significant shareholder needs ID and proof of address, and a first-time borrower will also need a business plan and a cash-flow forecast.

How to Apply for a Business Loan

You should start with a soft eligibility check, not a full application. A soft search shows what you’re likely to be offered without leaving a hard footprint on your credit file, so you can compare two or three lenders before you commit.

Your timeline then depends on the lender. An alternative lender can decide in hours and fund within 24-48 hours when underwriting is automated — iwoca and Capify both run at that pace for straightforward cases.

You wait longer with a high-street bank or a secured facility — days to weeks — because a person reviews the accounts, and secured lending adds a surveyor’s valuation. Picture applying at month-end with payroll looming: that gap in speed is the whole decision.

You sign once you accept an offer, the lender takes the personal guarantee, and the funds are released. Read the final agreement against the quote — the rate, the fees, and the guarantee should all match what you were shown.

How to Choose the Right Business Loan

You can narrow the field on four things — what the money is for, how you want to repay, your credit profile, and how long you’ve been trading. Get those straight and most options rule themselves out.

You want a term loan at the lowest rate you qualify for if you need a fixed sum and your trading is clean. If your income is seasonal, a revolving facility that charges only on drawn funds serves you better, even at a higher rate.

The cheapest rate is sometimes the wrong choice.

You can’t use a 6.9% loan you don’t qualify for, and a low rate with a punishing early-repayment fee can cost more than a flexible facility you clear in six months. Match the structure to your cash flow first, then chase the rate.

When you’re ready, run a soft search at two or three lenders and compare the total repayable, not just the APR. We think that single habit saves owners the most money on borrowing.

Business Loan FAQs