7 of the best business loans compared

Business owner looking at finance options on a laptop

Which are the best business loans in the UK for growing businesses? Use our comparison to find out how small business loans work and the best options for fast funding.

From government business loans like Start Up Loans to backing from private banks, you can get help funding your business. But remember, a business loan may not always be the best option as it means taking on debt and interest charges. 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.

This guide covers the following:

How do business loans work?

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 five tips for a successful small business loan application to boost your chances.

You can apply for a start-up 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.

Challenges for businesses seeking funding

Almost a quarter (23 per cent) of businesses were seeking finance through a bank loan, according to our 2023 SME Insights Report.

Our data shows 33 per cent of businesses needed a cash injection of up to £20,000, while 25 per cent wanted to raise between £50,000 and £100,000.

Despite the high proportion of businesses looking for funding, it can be difficult to get. A quarter of businesses said a lack of funds and access to credit was a key concern.

Ahead of the 2024 general election, 43 per cent of 1,750 small business owners we surveyed said they want the new government to reduce red tape around business funding.

When to get a small business loan

Whether you can get approved for a business loan depends on the criteria of the lender. There’s start up business loans for new businesses. 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 about the criteria.

This article is intended as a guide and not financial advice. You should always seek the help of a professional if you’re not sure of anything.

Understanding loans for business

There are several decisions you need to make when you’re looking for a business loan, and lots of new information to understand. Below are some of the key points to consider.

Fixed rate vs. variable business loans

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.

Secured vs. unsecured business 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 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 loans 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.

Long term vs. short term business loans

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.

Business loan comparison

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 banks.

We’ve compared a range of business loans, looking at factors like loan amounts, eligibility criteria, minimum business loan interest rates, and application process.

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.

Compared: 7 of the best business loans in the UK

Our quick list is in no particular order, but gives you a starting point for what’s available:

Virgin StartUp Loan

Virgin has supported over 5,000 founders through its Start Up programme, injecting almost £80 million into UK small businesses. Virgin’s StartUp Loan is aimed at new or early-stage businesses and entrepreneurs, looking to scale or get started. Successful applicants also get full access to exclusive business support, as part of The Funded Club.

Loan amount: £500 to £25,000 for each co-founder.

Interest rate: There’s currently a fixed annual interest rate of six per cent.

Loan term: One to five years.

Fees: No set-up fee or early repayment penalties.

Eligibility: Your business must be under three years old, and you’ll need to be a UK resident and your business must be registered in the UK.

How to apply: Head to Virgin’s StartUp Loan application page.

Government-backed Start Up Loan

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: £500 to £25,000.

Interest rate: Fixed rate of six 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 three 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 cash flow forecast, but you’ll be given help to get these together.

NatWest Small Business Loan

NatWest emphasises the flexibility of its loans, ranging from small, short-term cash injections to bigger, long-term loans. Up to seven-year terms may be available to some businesses.

Loan amount: £1,000 to £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. The representative APR ranges from 11 per cent to 16 per cent.

Loan term: One to seven 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 Small Business Loan

HSBC offers loans with a fixed interest rate and the option to defer your first repayment for three or six months. There’s also the option for a January payment holiday, where no repayments are made in January for the lifetime of the loan. Sustainable businesses can also benefit from a cashback fund if the loan supports an eligible purpose.

Loan amount: £1,000 to £25,000.

Interest rate: Fixed. The website gives a representative APR of 11.3 per cent for loans up to £10,000 and 8.6 per cent for loans over £10,000.

Loan term: One year to 10 years.

Fees: An early repayment interest charge may apply, but there are no charges for additional repayments.

Eligibility: There’s an eligibility checker on the HSBC website.

How to apply: If you’re an HSBC business banking customer you can apply online via your internet banking portal. Otherwise, you can apply by phone.

Lloyds Bank business loans

Lloyds Bank presents businesses with options including fixed rate and variable rate loans. You can usually get an online quote for loans up to £25,000.

Loan amount: £1,000 to £50,000.

Interest rate: This will depend on the loan option you go for – the website currently shows 11.2 per cent APR on loans up to £25,000.

Loan term: One to 25 years.

Fees: There are no early repayment fees or arrangement fees.

Eligibility: Borrowers must be at least 18 years old, and be a sole trader, partner, or director of the business.

How to apply: On the Lloyds Bank website, or through online banking if you’re an existing customer.

Barclays business loans

Barclays offers secured and unsecured business loans, allowing borrowers to set their own repayment terms. Its business loan calculator allows you to get an instant quote on an unsecured loan up to £25,000.

Loan amount: Unsecured loans up to £100,000 and secured loans for more than £100,000.

Interest rate: Representative APR of 8.9 per cent for loans up to £25,000.

Loan term: Unsecured borrowers can choose their term, secured borrowers can choose their term up to 25 years.

Fees: It’s not clear from the Barclays website whether borrowers need to pay early repayment or arrangement fees.

Eligibility: To get a loan from Barclays, your business will need to be based in the UK. On application, you’ll also need to provide your trading accounts, business plan, profit and loss details, plus details of how you plan to use the loan.

How to apply: Business account holders can apply for a Barclays loan online. If you’re a new customer, you’ll need to contact them by phone.

Starling Business Loan

Challenger bank Starling offers a business loan to customers for up to £250,000 with fixed monthly payments. Starling says that each loan application is individually reviewed and priced by a specialist team.

Loan amount: From £25,001 to £250,000.

Interest rate: Repayments will be fixed, but the interest rate isn’t clear from Starling’s website.

Loan term: Between one year and six years.

Fees: There are no fees for early repayments but there is a one-off loan arrangement fee of four per cent.

Eligibility: Your business must have been running for at least two years and must be based in the UK. If you’re not a Starling customer, you’ll need to open an account to apply for a loan.

How to apply: You can submit your application for a loan through the Starling Bank website.

Business loans eligibility criteria

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.

You can find out an estimate of how much you could borrow using Experian’s business loans calculator.

What are the alternatives to a business loan?

As well as traditional lending from high street banks, there are other types of loans for small businesses such as bridging loans and peer to peer lending.

Bridging loans are designed to give access to short-term finance while a business is waiting for money to be paid to them. Peer to peer lending uses an online platform to match businesses with investors willing to give them funding.

If a business loan isn’t right for your business, there are some other ways you can get a cash injection, from small business grants to investment.

The types of investment range from crowdfunding and venture capital, to the Enterprise Investment Scheme and angel investment.

A business grant is money you don’t have to pay back. And while you may not have to pay back private investment, it’s likely you’ll have to give away a stake of your business in exchange for funding.

Read our comprehensive guide to business funding and investment for more information.

Watch out for misleading debt help schemes

Small business owners and consumers have been warned about the dangers of individual voluntary arrangements (IVAs).

An IVA is an agreement between someone in debt and their creditors. The person in debt makes payments to an insolvency practitioner, which manages debt repayments to creditors.

Using an IVA could impact an individual or business credit score, and there are often high upfront fees to pay.

Read more about the ‘hidden debt scandal’ on the Citizens Advice website and visit our cost of living hub for information on the help available to you if you’re in financial difficulty.

What’s your experience of small business borrowing? Tell us in the comments.

Photo: Dragana Gordic/stock.adobe.com

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Conor Shilling

Conor Shilling is a professional writer with over 10 years’ experience across the property, small business, and insurance sectors. A trained journalist, Conor’s previous experience includes writing for several leading online property trade publications. Conor has worked at Simply Business as a Copywriter for three years, specialising in the buy-to-let market, landlords, and small business finance.

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