Small Business Loans UK

A guide to helping you understand and compare small business loans online

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What Are Small Business Loans?

Small business loans are a specific type of loan designed for small businesses to borrow either a lump sum or open a line of credit that can be accessed when needed. While some lender criteria for what they consider a ‘small business’ can vary, the majority of lenders will have a company size or turnover limit that you must fall within to be eligible for a small business loan in the UK.

You may be a startup business, or you might simply wish to grow your small company and need to invest in certain areas to make that happen. If your enterprise needs funds over and above what you have in the company bank account, a small business loan might be a good solution for you to consider.

The Benefits of Applying for a Small Business Loan Online

Apart from the obvious benefits of applying for a business loan from the privacy and convenience of your own office, there are many other advantages to heading online instead of visiting your local high-street bank branch of Barclays, Natwest, Lloyds, HSBC or the Halifax.

In recent years, many small businesses have found it more difficult to access this kind of funding due to the centralisation of the top five banks’ credit processes, which in turn meant that loan products from these banks became nearly non-existent or expensive. As a result, the UK has experienced a sudden surge in alternative funding, bringing many benefits to small businesses:

• Quick loan turnaround - Compared with banks, alternative lending providers are smaller, nimbler organisations. They can make decisions quickly, without the red tape that banks have to contend with.

• Flexibility in lending policies and lower interest rates - The money in most cases will be lent off a lender’s own balance sheet, allowing them flexibility in their lending policy meaning that businesses can sometimes enjoy lower interest rates.

• Less need to secure a business loan - Most banks have many financial and reporting covenants, and often require security against the family home of the business owners. Alternative lending providers are more relaxed when it comes to covenants, and unsecured lending is often supported by personal guarantees, without security against homes.

That said, sometimes some of the major banks do offer small business loans that might suit your requirements. The beauty of comparing small business loans and applying online is that you have access to all of the high street lenders as well as challenger banks and alternative lending providers in one place, helping you to make an informed decision about your borrowing.

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How to Access Alternative Funding Providers and Others

Here at BusinessComparison we take the strain out of searching for business finance and will compare high street banks, challenger banks and many independent and small specialist lenders to find the best deal suited to you.

Simply enter your details into our business loan comparison tool, and we will do the rest.

What are the Different Types of Small Business Loans?

All small business loans are not the same, and there are various types of borrowing that fall into this category. We explain the various types and differences below:

A secured small business loan is normally an option for a business that has a bad credit rating, or no credit history at all. The lender can ensure that they will regain the lent amount by securing it against a property or high-value assets that are owned by the business, so they can take possession of this should the business fail to make the repayments.

Upon application, the lender will wish to take a detailed look at any commercial mortgages that you have on your premises and the value of your business assets. Alongside this, they will require recent bank statements and filed accounts.

Once the valuation has taken place, you’ve agreed a loan amount and repayment schedule, the lender will be able to make a legal claim over the secured premises and assets should any repayments be missed.

An unsecured small business loan is not secured against any of your business assets and is purely based on the future potential of your business in order to make repayments. The funds tend to be available quicker than if you successfully applied for a secured loan, as the lender will not have to take the time to value your business; although they will wish to have a thorough understanding of your company’s profile, your personal credit history and assets.

Personal guarantees and unsecured small business loans - A personal guarantee means you, as the business owner or partner, will become personally liable to repay a loan if the business fails to pay. This may sound overwhelming, but it can help influence the lender's decision, especially in the case of a startup business where you have no business credit history to prove your financial reliability.

What Information Will I Need Before Applying for a Small Business Loan?

Although some people are of the opinion that small business loans are hard to get, it really depends what you are after, and whether it’s a secured or unsecured loan. Essentially, lenders wish to understand your business and the likelihood of you maintaining your repayments. Below are some examples of the areas that lenders will most likely look at, but if you require an unsecured loan they are likely to delve into more detail:

• Turnover, revenue and profit, these are the basic indications of your business’ success. They demonstrate the business’ ability to maintain a steady cash-flow and consequently keep up any repayments towards a loan. Bank statements from the last 3-6 months and your last set of filed accounts from Companies House are normally required by the lender to understand your business’ financial health.

• Your business’ trading history. Understandably, it will be difficult for start-up businesses to provide this sort of information. But for the more established businesses this helps the lender understand the past performance of your company.

• Directors’ histories, lenders tend to like to understand if any Directors are of a potential financial risk to the business, also if any CCJs or Winding Up Orders have been filed against them or the business.

• Forecasts and business plans alongside information about your clients and customers. Lenders ask for this information to get a thorough understanding as to how profitable the business is. They want to understand what returns you expect, how volatile the market that you are trading in is, and essentially how likely they are to get their loan repaid.

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How a Small Business Loan Can Help You

There are many reasons why a small business might want to borrow money, but some of the most common include:

If your company experiences a boom in business: more work means increased revenue for your business. But, in order for you to fulfil your clients’ needs, you will most likely need more resources than you currently have. For example, production equipment, raw materials or more employees to get the job done.

This is where small business finance for expansion comes in and helps you increase your working capital. Most importantly, you can normally gain funding very quickly, in potentially a matter of days, enabling you to take advantage of the opportunities that have arisen.

Purchasing extra equipment. There are financing options designed specifically so that you can gain access to the tools and assets that your business needs as it grows. By borrowing the money, it means that you can act quickly, without having to pay large amounts of your operating money up-front. Consequently, this means that the business will maintain a good cashflow position, so you can still pay the other overheads during times of expansion.

Moving into new premises. You may be looking to purchase a new office space, warehouse or trading outlets, or you simply wish to get a head-start with the first few months’ rent and installing the fixtures and fittings that you need to hit the ground running. A growing company can’t always finance this kind of move without borrowing, which is where a small business loan can help make the move a reality.

Getting started in a new market. Entering a new market can mean a greater demand for your products and services. To avoid any overwhelming orders or unforeseen problems, a small business loan can be a great solution to cover eventualities in the first few important months.

That way, your normal cashflow will not be affected should anything unexpected occur, and you can reap the rewards of the new market.

Mergers, acquisitions and takeovers. A great way to grow companies is through taking over existing businesses, perhaps rivals, or merging with them. Raising finance for this type of growth is essential and something that a small business loan may be able to help with.

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Should I Take Out a Secured or Unsecured Small Business Loan?

A secured loan often has lower interest rates, due to there being less risk to the lender, although the amount available to borrow is determined by the overall asset value, usually 50-70%. It’s important to note that the business seeking finance will incur costs associated with valuations and legal fees, which usually need to be paid for up-front, and the amount of work and evaluation that needs to be undertaken means that it can take longer to process the application and receive the funds if successful.

An unsecured loan tends to have a higher interest rate, due to the increased risk that the lender is undertaking, although it usually takes less time for the application to be processed and the funds to reach the borrower. As there is no need to secure the finance, there is no need to have physical assets in your business, and there are lower costs up-front.

Compare Small Business Loans in the UK

Here at Business Comparison, we offer a huge variety of market-leading small business loans and many exclusive deals; from merchant cash advances to working capital and many more, we are ideally placed to help you find funding to suit your business needs. We compare small business loans ranging from £1,000 to £20,000,000 with many different finance packages. We can help you find the deal most suited to your specific requirements and offering repayment options and a loan term that works for your company.

How To Apply for a Small Business Loan

To help us understand your requirements and to find the best small business loan to suit your needs, use the button below to fill out your details and get a tailored quote for your company.

It takes only a few minutes, and it is the first step towards that much-needed cash injection for your business.

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FAQs on Small Business Loans in the UK

Can I get a small business loan if my company is seasonal?

Depending on your circumstances, a business loan might still be a good option for your company if your operations are seasonal, as long as you are able to make monthly repayments throughout the year. If you are not going to be able to manage the finances to repay the lender during off-peak or fallow periods, a traditional loan might not be the best route for your business.

Can I get a small business loan with bad credit?

If your company has adverse credit or no credit history, which a lender can use to assess your level of risk, you may have fewer lenders to choose from, but you may well still be able to access business borrowing. At Business Comparison, we can help you compare bad credit business loans to find the best deal for your specific circumstances.

Who is eligible for small business loans in the UK?

Lenders all have their own individual criteria when it comes to small business loans, but usually in order to be eligible, you will need to be a UK resident, over the age of 18 and run a limited company, partnership, LLP or be registered as a sole trader. Your business may also need to fall within certain parameters for size (i.e. number of employees or annual turnover). Whether or not your application will be approved will depend on many factors that are unique to each lender and their evaluation process.

Can I get a small business loan if I am a sole trader?

It is often possible to access borrowing if you are a sole trader, but many of the large high street lenders will not offer loans to sole traders. You may need to explore small business loans from challenger banks and alternative lenders to find the right solution for your needs. You can compare sole trader loans with BusinessComparison to get access to the best rates and deals.