Business Loan Interest Rates Explained: What to Expect
Banks offer from 3% APR; specialist lenders range from 6% to 50%+ depending on your risk profile. We recommend comparing via Tide Funding Options or iwoca using a soft search before committing.
- Tide Funding Options compares rates from multiple lenders in one place.
- One soft-check application reaches lenders suited to your trading profile.
- Compare interest rates and total costs before committing to any loan.
How Business Loan Interest Rates Are Calculated
Business loan interest is quoted in three ways depending on lender type: APR, monthly rate, and factor rate. APR (Annual Percentage Rate) includes all fees and lets you compare like-for-like across banks and most alternative lenders.
Merchant cash advance providers use a factor rate — a multiplier applied to the amount borrowed. A factor of 1.25 on a £20,000 advance means you repay £25,000 in total.
Monthly rates are also common among short-term lenders. A 2% monthly rate equals around 26.8% APR once compounding is factored in — far higher than the headline figure suggests. We found APR the most reliable metric for comparison across lender types.
The base rate a lender charges reflects their cost of capital. On top of this, they add a risk margin based on your credit profile, trading history, and the loan terms. Larger loans and longer terms can attract lower rates in some cases, but not always.
Fixed vs Variable Interest Rates on Business Loans
A fixed interest rate stays the same throughout the loan term. Your monthly repayment is predictable, which makes cash flow planning straightforward. Most alternative lenders and short-term loan providers offer fixed rates only.
A variable rate tracks an underlying benchmark — typically the Bank of England base rate. If the base rate falls, your repayments drop; if it rises, they increase. Banks are more likely to offer variable-rate business loans, especially on larger facilities.
We recommend fixed rates for most businesses unless your loan is large and long-term, and you have a clear view on rate direction. For short-term borrowing, a fixed rate gives more certainty on total loan cost.
What Interest Rate Will You Get on a Business Loan?
High-street banks offer the lowest rates — typically 3–7% APR for established businesses with strong credit and 2+ years of trading. These rates are only available to lower-risk borrowers with clean credit files and audited accounts.
Alternative lenders such as iwoca and Funding Circle typically charge 6–30% APR. The rate depends on your credit score, trading history, loan amount, and term. Businesses with adverse credit or short trading histories will pay toward the higher end.
Merchant cash advance providers use factor rates rather than APR. A factor of 1.25 on a £20,000 advance means you repay £25,000 in total. We verified that translates to roughly 40–80% APR depending on your repayment speed — use this product for short-term gaps only.
How to Get the Best Business Loan Rate
Your credit score is the single biggest lever. A personal credit score above 650 and a clean business credit file unlock the best rates at alternative lenders. Check your Experian and Equifax scores before applying and dispute any errors.
Reduce outstanding credit before applying. High utilisation on existing facilities raises your risk score. Pay down revolving credit below 30% of your limit three months before you apply.
Choose the right lender for your profile. If your score is below 600, Funding Circle will price you out of their best rates — iwoca or Capify are more realistic options.
We compared rate outcomes across lenders and found that matching to lender type saves significantly on total borrowing cost. The right fit matters more than the headline rate.
Use soft-search eligibility tools before committing to a full application. iwoca and Tide Funding Options both let you check indicative rates without leaving a hard search on your credit file.
Business Loan Interest Rates by Lender Type
Funding Circle offers from 6.9% APR for established businesses. It uses a risk-based pricing model — stronger businesses get lower rates. This is the most competitive rate we found among alternative lenders.
iwoca quotes monthly rates from 2%, equivalent to roughly 27% APR. Rates are tailored to your Open Banking data — businesses with strong, predictable cash flow tend to receive better pricing.
Capify uses a factor rate model — typically 1.18 to 1.50. This makes total cost transparent, though APR can be high for shorter terms. It is best suited to businesses that need fast access and have limited options elsewhere.
High-street banks (Barclays, NatWest, Lloyds) offer the lowest rates but require the strongest profiles. Expect 3–7% APR, with full underwriting and slower decisions.
Business Loan Interest Rate FAQs
What is a typical interest rate for a business loan in the UK?
It depends heavily on your lender type and credit profile. High-street banks offer from around 3–7% APR for strong applicants. Alternative lenders typically charge 6–30% APR. Merchant cash advance providers use factor rates — often equivalent to 40–80% APR. Compare using APR wherever possible.
Is a fixed or variable rate better for a business loan?
For most businesses, fixed rates are preferable. They give you certainty on repayments and make cash flow planning easier. Variable rates can save money if the base rate falls, but they add unpredictability to your monthly costs. Only consider variable if you are comfortable absorbing rate movements.
Does my credit score affect my business loan interest rate?
Yes, significantly. Lenders use your credit score as a core input to their pricing model. A personal credit score above 650 (Experian scale) typically unlocks better rates. Adverse credit — CCJs, defaults, or missed payments — will either push your rate up or result in a decline at some lenders.
Can I negotiate a lower rate on a business loan?
At alternative lenders, rates are generally set algorithmically and are not negotiable. At high-street banks, you may have more room to negotiate — particularly for larger loans or long-standing customers. Providing strong documentation (2+ years of accounts, strong cash flow data) can improve the initial offer you receive.
This guide was researched using primary sources including FCA guidance, Bank of England publications, and lender primary websites. The content covers business loan interest rates. Verified in May 2026.
The information covers general principles applicable to UK businesses and is not financial advice. Rates, terms, and eligibility criteria vary by lender and business circumstances. Verify current terms directly with providers before making decisions.
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