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Business loans

Compare business loan rates with Funding Options[1]

Who is eligible for a business loan?

Business loans are often taken out to help with start-up costs, or to enable a business to grow. 

Eligibility for a loan will depend on your personal financial situation as well as that of your business.

As with any other borrowing, a bank or other loan provider will look into your credit history, but in addition they may also want to see a business plan or business accounts. Depending on whether you're a start-up or an established business.

Before applying, make sure your finances are in order and that you're as prepared as possible.

Taking out a business loan with your current bank may seem like the simple solution. But any bank will ask whether or not you can manage the interest and repay the loan in the time set. It's always a good idea to shop around and keep your options open.

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How to get a quotes

Comparing business loan rates is quick and easy. Have bank statements and other paperwork to hand to speed up the process.

Types of business loan

Depending on your needs and financial position, there are four main types of business loan to consider.

Secured business loans

These loans can be secured against a number of different things. Depending on how much you want to borrow, and what for.

Security may include a personal guarantee, security over whatever's being purchased with the loan or over assets in the business. It may even be possible to put your own home up as security.

Remember that your home will be at risk if the business fails to keep up repayments, so think carefully about this option. 

Generally speaking, secured loans allow businesses to borrow larger sums of money than unsecured loans.

Unsecured business loans

An unsecured business loan is borrowing taken out from a bank, building society or peer-to-peer lender. Because the loan is unsecured, there's no collateral - like your existing assets - to back the loan.

The amount lent and interest rate will depend on the creditworthiness of you and your business.

Peer-to-peer lending

Getting a loan for your business via a peer-to-peer (P2P) lending lending platform could be another way to finance your business. With P2P lending, you borrow from individuals rather than a bank or lender.

Access to lending depends on the platform you choose. For example, some may only offer borrowing to sole traders.

Government-backed start-up loans

If your business is just getting started, it's worth looking into government-backed schemes too.

The Start Up Loans programme was created by the Department for Business, Innovation and Skills in 2012 to help support people with a business idea but no access to finance.

Loans are low cost, unsecured and have a fixed rate of interest. But you must repay within five years.

Government schemes for businesses in response to coronavirus

The Bounce Back Loan Scheme (BBLS)  and the Coronavirus Business Interruption Loan Scheme (CBILS) have now both closed.

But businesses of any size can still use the Recovery Loan scheme, even if they've used one of the two previous schemes.

You need to qualify for the loan with an individual lender and the government will guarantee 80% of the loan with the lender, making it more likely that they'll accept you. You'll still be 100% responsible for repaying the debt.

To qualify for the loan you need to show that your business:

  • Has been adversely affected by coronavirus
  • Would be viable if it weren't for the pandemic
  • Is not in collective insolvency proceedings

Make sure you've prepared your business plan or financial documents carefully before applying for a business loan - and that you can make the repayments.

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Pros of a business loan

  • A business loan offers certain levels of flexibility while also providing fledgling or growing businesses with certainty for the years ahead
  • You can compare fixed and variable rate business loans 
  • Some variable rates may be available, which means the interest you pay fluctuates depending on the Bank of England base rate or market forces. With a variable loan, your monthly payments could go up or down at any time, so make sure you're comfortable with this risk
  • Some business loan providers may offer a repayment holiday, which means you can take a few months off from repaying your loan if you're waiting on payment from clients or if you have a cash-flow problem.  Be aware that if you do take a payment holiday, you'll pay more in interest as it will continue to accrue, and it'll take longer to pay off the loan
  • You'll keep control over your business and you won't need to look to investors for help. Investors may be necessary if you need a large amount of cash to take your business to the next level

Cons of a loan

  • If you take out a loan from a bank or other mainstream provider - as the majority of businesses do - you may have to agree to give regular updates about your business performance.  And be subject to ongoing financial checks
  • If you want to repay your loan early, you may have to pay an early repayment charge. Think carefully about the length of time you want to commit to borrowing

Frequently asked questions

  • Can I get a business loan with a poor credit rating?

    You might be able to get a business loan with a poor credit rating. You're more likely to get approval for a secured loan, where you've put up an asset as collateral. Expect higher interest rates and lots of checks on your business for a lender to be comfortable though.

  • How long does it take to get a business loan?

    It depends slightly on how much you want to borrow and for how long. If you're borrowing from a lender you already bank with it might be a bit quicker. The key thing when applying for a loan is to have all your documents to hand.  Things like bank statements, business accounts and forecasts.  It'll speed up the process. Check with the lender beforehand so you know what information you'll need.

[1]Gocompare.com introduces customers to Funding Options Limited, who help UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options Limited are a credit broker and not a lender. Funding Options Limited are authorised and regulated by the Financial Conduct Authority. Gocompare.com's relationship with Funding Options Limited is limited to that of a business partnership, no common ownership or control rights exist between us.

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