Business loan

Quick facts

Amount

Typically up to 25% of your annual turnover, or $18,000-$90m (from startup to commercial)

Term

1-5 years (5-20 years for a commercial loan)

Cost

Varies according to lender, your business profile, amount and whether fixed or variable rate (e.g. from 7-30%)

Speed

Varies

Purpose of finance

Broad range

Suitable for

There are different loans to suit your situation, from startup to established

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A traditional business loan is a lump sum of capital that you pay back with regular repayments at (usually) a fixed interest rate. Lenders include high-street banks, challenger banks, online lenders and small local specialists. There are many different types of loan but the two overall categories are secured loans and unsecured loans.

Business loan is a broad category, and can refer to lots of different products including:

Within these different types of business loan – of course there is some overlap between them – you’ll find some that better suit your particular situation, e.g. you might be looking for startup finance, equipment finance or working capital finance.

Depending on how long you think you’d take to repay the loan you can consider:

short-term business loans – usually between 3 and 18 months (often referred to as working capital loans)
‘term’ loans – usually between two and five years (‘term’ means medium- or long-term)
very short-term loans – including revolving credit facilities and other business overdraft alternatives.
long-term loans – these can run from 3 to 30 years, require monthly or quarterly payments from cash flow or profit, might restrict other financial commitments (e.g. debts, dividends or principals’ salaries), and can require an amount of profit set aside for loan repayment
balloon loans – relatively small monthly payments, ending with final ‘balloon’ payment to pay off the remaining loan balance.

There is a huge range of lenders offering loans to businesses, and they all have different eligibility criteria, application processes and interest rates.

It’s often possible – though more challenging – to get a business loan if you have a poor credit rating. You may need to offer security or a personal guarantee.

It’s worth noting that if you take out a short-term loan you’ll pay higher interest, but you may pay more interest overall with long-term financing, because you’re borrowing for a longer period of time.