Which are the best business loans in the UK right now? Use our comparison to find out how small business loans work and the best options for fast funding.
From government business loans like the new Recovery Loan Scheme to entrepreneur loans and backing, you can get help funding your business. But remember, a business loan may not always be the best option. Make sure you research thoroughly – and weigh up alternative options – before taking one out.
We’ve only compared a few of the business loans available. There are other providers and you should do your own research before making a decision.
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Taking out a business loan means borrowing money for business purposes. The type of business loan you apply for is likely to depend on your business circumstances and why you need the money.
If you’re thinking of applying, use our 6 tips for a successful small business loan application to boost your chances.
You can apply for a startup loan to help get your business off the ground, a short-term loan to help ease cash flow issues, or a long-term loan to fund the expansion of your business, for example.
Finally, it’s not all about the big-name brands. We’ve looked at the best banks for business loans, but also government funding and newer, more flexible lending options for 2020.
Whether you can get approved for a business loan depends on the criteria of the lender. There’s some funding available for businesses that are just starting out (see the sections on Start Up Loans and Virgin's early-stage business loan below).
For other loans, you’ll need to have been running your business for a certain amount of time. Contact the lender if you’re not sure.
There are several decisions you need to make when you’re looking for a business loan, or comparing loans, and new information to understand. Below are some of the key points.
If you have a loan with a variable interest rate, the rate can go up and down, whereas a loan with a fixed rate means your repayments tend to be predictable. Most small business loans are fixed rate loans.
A secured loan is backed by an asset (property, machinery or a vehicle, for example), which means the lender can claim ownership of the asset if the loan isn’t repaid. Unsecured business loans (UK, in this case) aren’t backed by an asset, but the lender may ask for a ‘director’s guarantee’ instead, which means they may go after the director for repayment if the loan isn’t paid off.
Whether you’re offered a secured or unsecured loan may depend on how much money you want to borrow. Large loan amounts will usually need to be secured, whereas lower amounts are often unsecured. Unsecured loans may have higher interest rates, as they’re riskier for the lender.
You’ll also need to make a decision about your loan term, which is the length of time that you have the loan for. This is likely to depend on what you need the loan for, and how quickly you think you’ll be able to repay it. Different lenders have different minimum and maximum loan terms, and the term you’re offered may depend on your circumstances.
Compare business loans and you’ll soon work out the categories and types of funding available, from government-backed Start Up Loans, to loans from peer-to-peer platforms, to options from high street and big-brand banks.
We’ve compared a few of the business loans available in 2020, looking at factors like loan amounts, eligibility criteria, minimum business loan interest rates, application process and how they all work across Covid-19.
It’s important to understand this is only a guide – the loan you’re actually offered will depend on your circumstances and the details of your business.
It can be tricky to get approval for a business loan, and the lender will ask for lots of paperwork as part of the application process, including business plans and accounts.
Bear in mind that, as well as the eligibility criteria mentioned for specific loans below, most business loans require you to be at least 18 years old, a UK resident, and not bankrupt or in a debt management scheme.
Whether a business loan is right for you depends on your circumstances. Remember that interest rates can be high and there are penalties for missed payments, so make sure you can afford the loan before you take it out.
And the best business loan rates? Our quick list is in no particular order, but gives you a starting point for what’s available in 2020.
Many banks have frozen their small business loan applications during coronavirus, or are currently offering specific government-backed Covid-19 funding. The British Business Bank can help you find a lender for one of these schemes, plus information about how they work.
The Bounce Back Loan Scheme (BBLS) is designed to help small businesses access finance quickly, during the coronavirus outbreak. You can borrow from specific accredited lenders (including Barclays, HSBC, Funding Circle and newer lenders like Starling Bank and Tide). All loans are government-backed, but you’re fully liable for the debt.
Loan amount: £2,000 – 25 per cent of turnover.
Interest rate: No interest for the first 12 months, and then 2.5 per cent a year.
Loan term: Six years, but you can repay early without paying a fee. No repayments due during the first 12 months.
Fees: No fees for the first 12 months, and no early repayment fee. Lenders aren’t permitted to charge their own fees.
Eligibility: Your business must be based in the UK, established before 1 March 2020 and be adversely impacted by Covid-19. Check gov.uk for more details on specific funding restrictions.
How to apply: 11 lenders are taking part in the scheme, and the government advises you to approach them yourself, using their websites. Get started on gov.uk’s BBLS info page or using the British Business Bank.
Virgin’s StartUpLoan is aimed at new or early-stage businesses and entrepreneurs, looking to scale or get started. The maximum loan size is £25,000 per co-founder, although you can apply for as little as £500. Successful applicants also get full access to exclusive business support, as part of The Funded Club.
Loan amount: £500 – £25,000 per co-founder.
Interest rate: There’s currently a fixed annual interest rate of 6 per cent
Loan term: One to five years.
Fees: No set-up fee or early repayment penalties.
Eligibility: Your business must be under two years old, and you’ll need to have an EU passport or valid UK visa.
How to apply: Head to Virgin’s StartUp Loan application page.
The Start Up Loans Company provides government-backed unsecured loans to people who are starting or growing a business. Technically, these are personal loans, granted for business purposes. Successful applicants also receive 12 months of business mentoring.
Loan amount: Up to £25,000.
Interest rate: Fixed rate of 6 per cent a year.
Loan term: One to five years.
Fees: No set-up or early repayment fees.
Eligibility: You need to be planning to start a UK-based business, or have a UK-based business that’s been trading for less than two years. You’ll also need to be a UK resident.
How to apply: Complete the Start Up Loans registration form online. Later on in the application process, you’ll need to provide documents like a business plan and a cashflow forecast, but you’ll be given help to get these together.
NatWest emphasises the flexibility of its loans, ranging from small, short-term cash injections to bigger, long-term loans. Up to 10 year terms may be available to some businesses, but security and/or a director’s guarantee can be required.
Loan amount: £1,000 – £50,000.
Interest rate: Fixed. The rate depends on your circumstances and loan amount, but using a slider on the website, you can see an example of how much you may need to repay.
Loan term: Up to 10 years.
Fees: No arrangement fee or early repayment charges.
Eligibility: You’ll need to be a director of the business to apply. If you’re in a trading partnership, limited liability partnership (LLP) or Limited Company you’ll need to provide additional information.
How to apply: You can make a business loan application on the NatWest website.
HSBC has increased its lending fund for small businesses since we published our 2019 best business loans list, upping its pot to £14 billion overall. Look out for the three month repayment holiday option that’s currently available at the start of this loan.
Loan amount: £1,000 – £25,000.
Interest rate: Fixed. The website gives a representative APR of 7.1 per cent.
Loan term: 12 months to 10 years.
Fees: The arrangement fee has been scrapped, but HSBC states the right to charge for early repayment.
Eligibility: There’s an eligibility checker on the HSBC website.
Lloyds Bank presents businesses with four core options – Base Rate Loan, Fixed Rate Loan, Commercial Fixed Rate Loan and Capped Base Rate Loan. You can usually get an online quote for loans up to £25,000.
Loan amount: £1,000 – £1 million.
Interest rate: This will depend on the loan option you go for – base rate-variable, capped or fixed rate. The website currently shows 5.1 per cent APR on two of its loan types.
Loan term: One to 25 years on the Base Rate and Commercial Fixed Rate loans, one to 10 years on the Fixed Rate, and five to 25 years on the Capped Base Rate.
Fees: This will depend on which loan you apply for. There are currently no early repayment costs on the Base Rate or Fixed Rate options.
Eligibility: You can check the criteria for all four loan types on Lloyds Bank’s business loans hub page.
How to apply: On the Lloyds Bank website, or through online banking if you’re an existing customer.
Boost Capital aims to offer a more flexible alternative to traditional bank loans – its small business loans are there when you need a bit of extra cash for things like stock, refurbishment, marketing, staff, expansion, equipment, or just to keep the cash flowing.
Loan amount: From £3,000.
Interest rate: Boost Capital don’t use interest rates. Instead, they use ‘factor rates’ ranging from 1.1 to 1.5 – check their FAQs for details on how these work.
Loan term: Four to 18 months.
Fees: An arrangement fee may apply. Boost Capital offers some businesses a discount for early repayment, once you’ve paid a certain amount back.
Eligibility: Businesses trading for two years or more with an annual turnover of £70,000 or more are eligible.
How to apply: You can make a business loan application on the Boost Capital website.
What’s your experience of small business borrowing? Tell us in the comments.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
28 May 2020 • 3-minute read
If you’re applying for a loan to help your small business through a tough patch or to expand, there are things you can do to maximise your…
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