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Page written by Chris Godfrey. Last reviewed on May 30, 2025. Next review due April 6, 2026.
Working capital, expansion funds, cash to buy equipment and inventory. An SME business loan can help your organisation achieve its goals without putting strain on cash flow.
An SME business loan is a financing option designed specifically for small and medium-sized enterprises to support their growth, operations, or cash flow requirements. These types of loan are often tailored to the business’s size and revenue, with options for secured or unsecured borrowing. SME loans can help businesses better manage their expenses, seize new opportunities, and navigate financial challenges without disrupting daily operations.
An SME business loan works by providing money to a small or medium-sized business, which is repaid over time with interest. The funds may be provided as a lump sum, or as a credit facility that the business can dip into as and when they need extra cash. The business applies through a lender, providing financial details and a repayment plan. Once approved, funds are disbursed and used for business needs like expansion or buying inventory. Repayments may be fixed or flexible depending on the type of loan. Some loans may require the borrower to provide security in the form of physical collateral – such as real estate – or a personal guarantee.
Manufacturers, retailers, garages, restaurants, pubs, butchers, bakers, candlestick makers – every type of SME can benefit from a business loan.
Start-ups and small businesses can benefit from an SME business loan by gaining access to essential funds for launching, growing, or stabilising operations. The funding can support equipment purchasing, hiring staff, or better management of cash flow. With tailored terms, SME business loans can enable organisations to seize new opportunities, build their credit, and achieve sustainable growth more effectively.
It’s almost impossible to grow a business without access to capital. SME business loans can provide the funds needed to expand operations, open new locations, hire staff, or invest in equipment – helping businesses scale efficiently and confidently. Best of all, the loan can support strategic growth without diluting ownership by bringing in outside investors.
An SME business loan can help organisations with short-term cash flow needs by providing quick access to funds for urgent expenses such as payroll, inventory, or unexpected bills. The loan can also bridge income gaps, ensuring smooth operations during slow periods or delays in payments, while flexible terms could ease repayment until revenues are stabilised.
Like all types of business borrowing, SME business loans have their advantages and disadvantages:
Pros
Cons
There are business loans to suit SMEs of all shape and size:
Term loans are simplest form of business loan. Borrowers receive a single, lump-sum cash injection of up to £5 million and then pay it back in regular or flexible instalments, plus interest and any fees, over a period of anywhere from 1 to 25 years. Security may be required.
Also known as a revolving credit facility, a business line of credit functions like a high-value credit card. Businesses can withdraw as much as they want when they want from a loan facility up to the agreed limit of their borrowing. Once borrowed funds are paid back, they can usually be borrowed again. Interest rates are typically fixed, and businesses may repay on a set or ad-hoc schedule. Security may be required.
Invoice financing (also known as invoice discounting) allows businesses to borrow against the value of their outstanding invoices. Instead of waiting 30, 60, 90 days or more, release the cash tied up in your unpaid invoices as soon as you issue them – sometimes in 24 hours or less. You retain control of your sales ledger and are still responsible for collecting payment from your customers. This means clients need never know you’re using your invoices to raise funds. No added security required.
Available for businesses that accept customer payments by credit and debit card. A merchant cash advance allows you to borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan. No added collateral required.
Asset-based lending is a type of loan secured by a company’s assets, such as inventory, property, or plant and equipment. Lenders use these assets as collateral, which reduces risk and may allow businesses to access funds even with weak credit. Asset-based lending is typically used for working capital or cash flow support. No added security required.
Obtaining an SME business loan is similar to applying for other types of business finance. Lenders will review your credit score (typically both personal and business) and ask for key business information.Â
Depending on the type of business loan you are seeking, you may need to provide:
Generally, the longer you’ve been in business and the better your credit score is, the more you’ll be able to borrow and the less interest you’ll pay.Â
You can search for SME business loans by approaching banks, building societies and online lenders one by one, a process that may take weeks or even months, or you can use the services of a loan marketplace that will immediately introduce you to a choice of loans from a range of lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for SMEs who have never taken out a business loan before.Â
If the options above are not right for you, there may be other ways to obtain the funds your business needs:
Available via various online platforms, crowdfunding can provide the cash you need if your presentation hits the right spot. Although it may be tough to raise large sums in small donations from hundreds of donors, the cash is essentially free as there is no interest to pay, and you don’t need to repay the money if you spend it where you said you would. An eye-catching idea and a powerful pitch are essential to succeed with this funding option. Security is not required.
Peer-to-peer (P2P) lending is a method of borrowing money directly from individual investors through an online platform, bypassing traditional lenders such as banks. Businesses apply for loans, and lenders may choose to fund them, often in small amounts across multiple loans. Although this lending method can be time-consuming for borrowers, it may offer access to funds when businesses are unable to obtain other types of business loan. Security may be required.
Business grants are provided by local and national government and some foundations and charities. This is effectively free money, as grants do not need to be repaid like a loan. However, there is often stiff competition for grants, the application process can be slow and difficult, and the pool of available money is usually limited, which can restrict the amount of cash you may receive.
Working with business finance experts can make all the difference when applying for a loan. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality SME business loans from a choice of lenders on the Swoop business funding platform. Grow your small or medium-sized business into a big business.
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.
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