Loans

A business loan is money a lender gives to a business. The business pays it back over time in regular amounts, usually each month. It also pays extra money called interest.

Common ways business loans are used

  • Everyday costs: Paying for things like wages, rent, or stock.

  • Growing the business: Opening a new place, moving into a new market, or buying another business.

  • Buying equipment: Getting machines, technology, or vehicles for the business that cannot usually be bought with Hire Purchase or leasing.

  • Cash flow gaps: Helping when money coming in is late or uneven.

Main types of business loans

  1. Secured loans: These are backed by something the business owns, like property or equipment. If payments are missed, the lender may take and sell it. These loans often have lower interest and let you borrow more.

  2. Unsecured loans: These do not need business assets as security. Because they are riskier for the lender, they often cost more. A director may also have to promise to pay if the business cannot.

What lenders may ask for

To get a business loan, lenders often ask for:

  • A business that is registered in the UK.

  • Recent business accounts and bank statements.

  • A clear plan for what the loan is for and how it will be paid back.

  • A good business credit score, although some lenders help businesses with poor credit.

Advantages

  • You keep control: You do not have to sell part of your business to get the money.

  • No sharing profits forever: When the loan is fully paid back, your duty to the lender ends.

  • Useful for many things: You can use the money for lots of business needs, such as staff, stock, marketing, or cash flow gaps.

  • Can help your credit score: Paying the loan on time can make it easier to borrow in the future.

  • Possible tax help: Some interest payments may count as a business cost for tax.

Things to keep in mind

  • You must keep paying: You still have to make payments even if the business is having a bad month.

  • It costs extra: You pay back more than you borrowed because of interest and fees.

  • Risk to your assets: With a secured loan, the lender may take business property or equipment if you do not pay.

  • Personal guarantees: A director may have to pay the debt if the business cannot.

  • Not everyone will qualify: New businesses or those with poor credit may find it harder to get a loan.