What are business loans?
Written by Mark Hagan, Managing Director · Reviewed by Jamie Grimshaw, Chartered Banker
Last reviewed: July 2026
A business loan is a lump sum of money borrowed from a lender and repaid - usually with interest - over a set period of time.
In this guide, you'll learn how business loans work, what types are available, the potential benefits and risks, and how to decide whether a business loan could be right for your circumstances.
What are business loans?
A business loan provides your business with a fixed amount of capital that you repay over an agreed term, typically with interest added on top.
Business loans are one of the most common ways for UK businesses to access funding, and they're offered by high-street banks, challenger banks, and specialist online lenders alike.
They may be used for a wide range of purposes - from buying stock and funding growth to managing working capital gaps or investing in new equipment.
How do business loans work?
Once approved, you'll receive a lump sum in your business bank account. You then make regular repayments - usually monthly - over the agreed term, which could range from a few months to 25 years depending on the lender and the purpose of the loan.
Interest rates may be fixed (so your payments stay the same throughout) or variable (meaning they could go up or down). Some lenders also charge arrangement fees, early repayment charges, or other costs, so it's important to understand the total cost of the borrowing.
What types of business loans are available?
Secured loans
Secured loans require you to provide an asset - such as property, equipment, or stock - as security. Because the lender has something to fall back on, interest rates are often lower. However, the asset could be at risk if you can't keep up with repayments.
Unsecured loans
Unsecured loans don't require specific assets as security, though some lenders may ask for a personal guarantee. They may be quicker to arrange but could carry higher interest rates.
Short-term loans
These are typically repaid within 3 to 18 months and may suit businesses that need quick access to smaller amounts of capital - for example, to cover a seasonal cash flow gap.
Government-backed loans
Schemes such as the British Business Bank's Start Up Loans programme offer government-backed loans with mentoring support, which could be worth exploring if your business is in its early stages.
Compare business loan types
Key differences between the four main types of business loan at a glance. Figures are typical ranges for illustration only.
| Feature | Secured | Unsecured | Short-term | Government-backed |
|---|---|---|---|---|
| Security required | Property, equipment, or stock | None (personal guarantee may apply) | Usually none | None |
| Typical amount | £25k – £5m+ | £1k – £250k | £1k – £100k | Up to £25k (Start Up Loans) |
| Typical term | 1 – 25 years | 1 – 7 years | 3 – 18 months | 1 – 5 years |
| Interest rates | Lower (from ~4%) | Higher (from ~6%) | Highest (from ~10%) | Subsidised (from ~6%) |
| Speed of funding | 2 – 4 weeks | 1 – 2 weeks | 1 – 5 days | 2 – 6 weeks |
| Asset at risk | Yes | No (unless personal guarantee) | No | No |
| Best for | Large purchases / expansion | General purpose funding | Quick cash flow gaps | New / early-stage businesses |
| Mentoring included | No | No | No | Yes |
SecuredTap to view
UnsecuredTap to view
Short-termTap to view
Government-backedTap to view
Figures shown are typical ranges for illustration only and will vary by lender and your business circumstances.
What are the benefits?
- Predictable repayments - fixed-rate loans give you certainty about your monthly outgoings.
- Flexibility - loan funds can usually be used for any legitimate business purpose.
- Retain ownership - unlike equity funding, you don't give up any share of your business.
- Build a credit history - successfully repaying a loan could strengthen your business's borrowing position in future.
What are the risks?
- Repayment obligation - you'll need to make repayments regardless of how your business performs.
- Interest costs - the total amount repaid will be more than the amount borrowed.
- Personal guarantees - if required, your personal finances could be at risk.
- Early repayment charges - paying the loan off early may incur additional fees.
- Impact on cash flow - regular repayments reduce the cash available for day-to-day operations.
Estimate your repayments
Use the calculator below to get an idea of what a business loan might cost. Adjust the amount, term, and interest rate to see how your monthly repayment changes - then speak to Mark for a personalised comparison across the market.
Business loan repayment calculator
Estimated monthly repayment
£1,038
This calculator provides an estimate for illustration only, assuming a fixed-rate loan with equal monthly repayments and no fees. Your actual repayments will depend on the lender, your business circumstances, and any associated fees. Always check the full cost of borrowing before proceeding.
Is my business eligible?
Eligibility criteria vary between lenders. Most will look at your trading history, annual turnover, profitability, and credit history. Newer businesses may find it harder to access traditional bank lending but could explore alternative lenders or government-backed schemes.
How do business loans differ from other funding?
Unlike asset finance, a business loan isn't tied to a specific asset - you can use the funds as you see fit.
Compared to invoice finance, which releases cash from your existing invoices, a loan provides new capital that doesn't depend on your sales ledger.
A merchant cash advance offers an alternative for businesses with strong card sales, but repayments fluctuate with your revenue rather than being fixed.
How do I choose a lender?
- Compare the total cost of borrowing, not just the headline interest rate.
- Check whether the lender is authorised and regulated by the FCA.
- Understand any fees, charges, or penalties for early repayment.
- Consider how quickly you need the funds - some lenders can release funds within days.
- Read reviews from other businesses and consider seeking independent advice.
How can I learn more?
The GOV.UK business finance finder and the British Business Bank both provide free, impartial resources.
You may also find our guides on asset finance, invoice finance, and commercial mortgages helpful.
Not sure if a business loan is right for you?
Mark can help you compare options across the market - free and without obligation.
How funding types compare
Visual comparisons across speed, cost, flexibility and more. The chart highlights the current option.
Strength comparison (score out of 5)
- Asset Finance
- Business Loans
- Invoice Factoring
- Cash Advance
- Comm. Mortgages
- Bridging Loans
- Working Capital
Scores out of 5 - higher is better for the business. The current option is highlighted; others shown faintly for reference.
Typical maximum funding (£ thousands)
Maximum typical amount available. Actual offers depend on your business circumstances and the provider.
Compare funding types
A side-by-side overview of the main business funding options. Click any column heading to read the full guide.
| Feature | Asset Finance | Business Loans | Invoice Factoring | Merchant Cash Advance | Commercial Mortgages | Bridging Loans | Working Capital |
|---|---|---|---|---|---|---|---|
| Typical amount | £1k – £500k+ | £1k – £500k+ | £10k – £5m+ | £5k – £300k | £50k – £25m+ | £25k – £10m+ | £1k – £500k+ |
| Speed of funding | 1–2 weeks | 1–5 days | 24–48 hours | 1–3 days | 4–8 weeks | 1–2 weeks | 1–3 days |
| Security required | Asset itself | Sometimes | Unpaid invoices | Future card sales | Property | Property | Varies |
| Repayment structure | Fixed monthly | Fixed monthly | Per invoice paid | % of card sales | Fixed monthly | Interest rolled up | Flexible |
| Funds used for | Equipment / vehicles | Any purpose | Cash flow gaps | Any purpose | Property purchase | Property / bridge | Day-to-day costs |
| Best for | Capital purchases | General funding | B2B businesses | Retail / hospitality | Buying premises | Quick property buys | Short-term gaps |
| You own the asset | Sometimes* | N/A | N/A | N/A | Yes | N/A | N/A |
| No early exit penalty | Varies | Sometimes | Usually | Sometimes | Rarely | Usually | Varies |
Asset FinanceTap to view
Business LoansCurrent
Invoice FactoringTap to view
Merchant Cash AdvanceTap to view
Commercial MortgagesTap to view
Bridging LoansTap to view
Working CapitalTap to view
* Ownership depends on the agreement type - e.g. hire purchase vs lease. Figures shown are typical ranges for illustration only and will vary by provider and circumstances.
Important information
This guide is for general information only and does not constitute financial advice. It's a good idea to seek independent professional advice before entering into any finance agreement.
Compare Your Funding is a trading style of TGL Solutions Limited. TGL Solutions Limited is not authorised by the Financial Conduct Authority and can only complete non-regulated introductions. We may receive a commission when we introduce you to a funder - see our how we make money page.
Related guides
What is asset finance?
Spread the cost of equipment, vehicles, and machinery over time.
Read guideSmall business loans
Compare loan options for UK small businesses, from £1,000 to £500,000.
Read guideStartup business loans
Funding options for new UK businesses, including government-backed Start Up Loans.
Read guideUnsecured business loans
Borrow without putting up business assets as security.
Read guideNot sure which funding is right for you?
Answer a few simple questions and Mark will personally review your situation and get back to you with impartial guidance.
Jamie Grimshaw
Expert ReviewedCommercial Finance Director · Trading since 2013 · £250m+ secured for UK businesses