Any business of any size might need a loan from time to time, it could be because of a cash flow problem or to invest in something.
Business loans are financial tools used to get extra money in a time of need. You may need a loan to invest in new equipment or staff for your firm, or to help with a short-term cash flow problem, whatever the reason, there are lots of options.
You also need to make sure you can pay back a loan as failing to pay back on time can lead to extra charges, bankruptcy, and even legal issues.
| Provider | Score | Details |
|---|---|---|
| 1. Tide | ★★★★★ | Learn more |
| 2. Capital on Tap | ★★★★★ | Learn more |
| 3. Metro Bank | ★★★★★ | Learn more |
| 4. NatWest | ★★★★★ | Learn more |
| 5. Yorkshire Bank | ★★★★★ | Learn more |
| 6. British Business Bank | ★★★★★ | Learn more |
| 7. HSBC | ★★★★★ | Learn more |
| 8. Funding Circle | ★★★★★ | Learn more |
| 9. Bank of Ireland UK | ★★★★★ | Learn more |
| 10. Lloyds Bank | ★★★★★ | Learn more |
| 11. Barclays | ★★★★★ | Learn more |
Best business loans for UK small businesses
The right loan for you will depend on your business and the provider you choose and you'll need to shop around to find the best option.
I've picked out some of the best business loans around to help you decide. Whichever loan you choose – make sure you read the small print so you know exactly how much you'll need to pay back and when.
Provider | Min Loan Amount | Max Loan Amount | Collateral | APR |
|---|---|---|---|---|
1. Tide | £500 | £500,000 | None | Variable |
2. Capital on Tap | £1,000 | £250,000 | None | As low as 15.5% (variable) |
3. Metro Bank | £2,000 | £60,000 | Guarantee and indemnity from a third party / group entity / from directors or members of the borrower; or security over property such as land or a bank account may be required | 9.6% (fixed) |
4. NatWest | £1,000 | £50,000 | A personal, director or member’s guarantee may be required | 12.35% (variable) |
5. Yorkshire Bank | £25,001 | £10m | Security may be required | Variable |
6. British Business Bank | £500 | £25,000 | None | 6% (fixed) |
7. HSBC | £1,000 | £25,000 | None | Variable |
8. Funding Circle | £10,000 | £500,000 | None | From 6.9% |
9. Bank of Ireland UK | £5,000 | £25,000 | None | 6.75% (fixed) + Bank of Ireland UK base rate |
10. Lloyds Bank | £1,000 | £50,000 | A Guarantee if you’re a Limited Company or Limited Liability Partnership | From 11.6% (fixed) |
11. Barclays | £1,000 | £100,000 | Guarantee may be required | From 11.5% (fixed) |
1. Tide: Our Top-Pick for Business Loans
The challenger bank Tide acquired Funding Options in 2022, expanding its lending and funding options to include cash flow and business financing.
Tide relies largely on open banking services, which allow any business, regardless of its banking provider, to connect securely to Tide's app and exchange financial data. Tide is able to quickly gather data and apply its algorithms for loan approvals because to this technology.
Tide provides several different kinds of loans, including those for working capital, invoice discounting, and new business start-ups. There are a variety of funding options, including grants and merchant cash advances.
Fast loan process using open banking
There is currently no speedier loan option for companies. With the advent of open banking, Tide is able to advertise the ease and speed with which loans are authorised. According to the Tide website, the average time it takes to get a business loan authorised is 3 minutes and 24 seconds.
Tides loans provide a flexible repayment plan without any hidden fees or penalties. You may get a smaller loan without putting up collateral or undergoing rigorous credit checks.
Overall, the product's good reputation and a large number of pleased consumers make Tide a formidable competitor. They have taken over Funding Options and now have access to a wealth of financial knowledge inside the company.
However as it is such a new business, it may be difficult to find many reviews from customers who have used these loans.
2. Capital on Tap
If you’re looking for an alternative lender to the traditional banks, Capital on Tap might be a good option for you. This is a credit card rather than a loan, but the concept is the same. You’re borrowing funds from a provider and paying them back with interest.
You can also earn rewards and cashback, which you can put back into your business.
In addition, there is no annual fee, which means the APR and the payments you make are clear, with no added expenses to worry about.
The APR that you end up with is going to depend on your credit as a business and as an individual. In addition, the interest rates may vary depending on what you charge to the card so it’s good to get to know the basics and understand how interest gets applied.
More than a loan
Capital on Tap understands that your business just needs solutions. This one provides you that and more. APR ranges anywhere from 15.5% to 35.15% (variable) and you have an open line of credit to charge things when you need to and pay them off. It’s revolving so you can cover expenses, pay if off, and do it all over again.
You can give as many employees as you want access with unlimited cards to hand out, allowing you to manage the business and not worry about who has access or when. Every pound you spend on the card results in a 1% reward that you can use for whatever you choose.
3. Metro Bank
Metro Bank believes in making it simple for their customers to handle business all in one place.
While you do need to be one of their business customers to qualify, their small business loans are a good choice.
You set up the terms to meet your business needs and keep all of your business finances in one location. They have physical branches all over the UK so you can get help in person when you need it too.
Their interest rates can vary based on the markets, but you can anticipate being somewhere near 9%.
Apply for a loan up to £60,000 to handle your capital requirements and keep your business running smoothly. It’s possible to get an unsecured loan through this avenue, but you may be required to come up with a guarantee or security measure of some sort.
Eligibility and repayment
Metro Bank requires any small business loan applicants to have a small business bank account with them. The small business loans it offers are for small businesses with less than £2 million in annual turnover.
The repayment plan will generally be on a monthly basis and your total payments will depend on the interest rate you're paying and the term of the loan. These loans can be set up anywhere from 1-5 years.
In some cases, Metro Bank also charges early repayment penalties so this may be a detail to consider as you set up the term of the loan.
4. NatWest
The NatWest bank small business loan is a great choice and while the APR is higher than some others, it’s still in a reasonable range.
They have a lot of great details that accompany this loan offer, starting with the fact that you can repay it at any time and not have to worry about early repayment fees or penalties of any kind.
The maximum loan amount is much higher than some, but to apply you will need a small business account, but it can be at any bank and not necessarily with NatWest. In addition, they also require security to post up as a guarantee, which means you will be held personally responsible for the loan in some way.
Loan terms and details
The NatWest small business loan is advertised in a specific range, which is pretty flexible. You can also pay off the loan when you're ready, or continue on the steady repayment term until the end.
This loan has an APR that ranges from 11-15% and you can borrow up to £50,000. The repayment terms advertised are for 1-7 years, but this is an area of flexibility where you may be able to request up to 10 years for repayment.
5. Yorkshire Bank
The Yorkshire Bank small business loan is a neat option, and they have some unique qualities that you won’t find at other banks. The first is that it’s possible to get a wholly unsecured loan, which is often a challenge.
If you’re a small business that has nothing to secure a loan, this might be an option for you. In addition, you can apply and complete the process completely online and you'll get a decision within 48 hours in most cases.
This lender offers some of the highest approval amounts, as well as the highest turnover allowances, for small business loans. You could get approved for up to £150,000, which is almost unheard of in the small business industry.
As far as turnover, there are no minimums, but they are unique here too. Where most small business lenders cap this much lower, they allow you a maximum capping position of £5 million per year, which is one of the top ranks for this detail.
Did we mention there are no fees for early repayment or online applications?
What do they look at?
Yorkshire Bank offers unsecured loans and the highest rate you might be charged for the APR is 20%.
The bank will look at how long you have had your business. If you’ve been around for more than 18 months and you meet the maximum turnover levels, you are likely to be approved.
6. British Business Bank
The British Business Bank start up loan is a great choice if you’re a small business looking for that push to get off the ground.
This truly is for startup purposes, so if you have a trading history, you aren’t going to qualify. However, it’s one of the most competitive loans in the industry.
They offer a low, fixed interest rate and they give you a reasonable repayment term too. While the startup loan is geared towards businesses with no trading history, there are options for businesses that do have a trading history also.
Standing apart with service
Not only can you borrow up to £25,000 with no trading history and pay only 6% interest, they don’t leave you to figure out the business industry all on your own.
You get the loan to provide you with much-needed capital, but the British Business Bank also gives you a personal business mentor as part of your agreement.
For those who have a trading history, as long as it is less than 36 months, you can still qualify for some of their loans. They don’t charge their customers any fees for the loan (apart from the interest rate) or for repayment so you are in control. In addition, no personal guarantee will be required.
7. HSBC
HSBC is one of the most well-known banks in the world, offering financial services in more than 60 countries. This British bank is Europe’s largest in terms of its value, which is more than £2.5T (opening of 2022).
Today it offers general banking, asset management, financing and insurance services and an immensely varied list of small business loans.
One benefit of choosing bank like HSBC is that there is very low risk of it defaulting or going bust.
The maximum size of the loan you can request will depend on the nature of your business and your financial history. You may also get preferred rates if you are 35 or older. You may also need to make a deposit of at least ten per cent of a security, such as your property.
Interest rates
The rate of interest you're charged depends on lots of different factors, including the nature of your business and the current market conditions.
The nature of your loan will vary according to whether it is secured or unsecured by assets. An unsecured loan will one up a more expensive interest rate because there is no backing by collateral.
Requirements
In some ways, British banks like HSBC and others are struggling to compete with digital-only banks and they usually require a lot more paperwork when applying for a loan. To qualify for a small business HSBC loan, you need to be a British resident, and have a good enough credit score.
You will also need to show proof of your financial status, including things like your firm's revenue and expenses, and the number of staff you employ.
8. Funding Circle
Funding Circle now operates as a commercial lender, however, it did not begin that way.
It was originally a peer-to-peer lending exchange — a marketplace where the everyday public could directly lend money to small businesses and medium-sized businesses.
Via this business marketplace, small businesses were potentially able to get lower costs for financing than would be possible with a bank.
Private lenders would see metrics related to the risk of lending to each business — they would then make their decision to lend based on their risk appetite.
Sadly, the Funding Circle exchange closed for “retail investors” as the pandemic hit. Between 2020 and 22, this feature was stopped and it has since become permanently removed as a feature for retail investors.
During the length of its existence, Funding Circle has facilitated more than £13B in loans to small and medium-sized companies. The lending platform is also listed on the London Stock Exchange.
Terms and conditions
Today, the company facilitates loans in its online marketplace. On the platform, investors can offer small companies money directly.
British businesses are able to borrow up to £500,000. The limitations on the total amount are different in other countries. For instance, the limit is set at a bit over £350,000 for Northern America, and around £300,000 for Germany and the Netherlands.
In this way, Funding Circle does not itself offer business loans to small businesses. Rather, this marketplace is a kind of matchmaker where investors can find compatible small businesses that match the level of risk tolerance.
Investors are able to choose the size of the investment they are happy with. However, the loan can only be lent for a maximum of 6 years.
Keep in mind that the UK Financial Services Compensation Scheme (FSCS: how the FSCS works) does not cover loans that originate from crowdfunding or peer-to-peer services.
For this reason, Funding Circle cannot offer this guarantee of protection to its customers. So if the company goes completely liquid, there may not be a legal precedent for recapturing this lost money.
The actual interest rate is set by Funding Circle itself according to how risky the small business request is considered and other criteria related to the loan term. This is a change that happened in September 2015 — beforehand, the loan rate was determined from an auction process.
Since December 2012, peer-to-peer lenders, Funding Circle included, became regulated by the British Financial Conduct Authority (FCA).
9. Bank of Ireland UK
The Bank of Ireland is another major commercial lender. They’re headquartered in Ireland and are one of the so-called “Big Four” Irish banks.
The Bank of Ireland is the nation’s oldest bank that still has a continuous operation. It offers typical deposit and checking services, overdrafts, mortgages, financing for global assets, debt financing, access to the foreign exchange markets and, of course, loans for small businesses.
One obvious attraction to using this bank is that it has some longevity and liquidity. This is quite considerable. The bank is large enough that it has the right to issue the production (money printing) of banknotes. This is despite the fact that it is not a central bank. It’s also a member entity of the European Banking Association.
Loans
As with HSBC, there was enough diversity of offerings that you will need to apply in order to get a sense of what interest rate and the chance you have of succeeding is.
You may also find that the 10% security by personal assets like a house also applies — in order to secure your loan. And nonresidents of Ireland may be charged an application fee of around £1,000, by the Bank of Ireland.
This is another traditional banking name that is struggling against challenger banks like Monzo and Starling.
10. Lloyds Bank
Lloyds Bank is not an international bank like HSBC. Instead, it has branches covering Wales and England. Nonetheless, it is still considered one of the “big four” banks in the UK.
It’s a long-lived banking company, founded in 1765 in Birmingham. It slowly expanded over the centuries. And, in 1995, merged with Trusted Savings Bank, after which it updated its name to Lloyds TSB Bank (which was changed back after a divestment).
Current headquarters are in London, with other HQ branches in Wales and even Scotland. Also find more in Yorkshire, Sheffield, Halifax, Birmingham, and Wolverhampton.
Services and availability
The main selling-point of this bank is that it has quite an extensive network, consisting of 1300 branches in Wales and England. Each of these offers financial and banking services. There are branches for the Channel Islands: Guernsey, Jersey and the Isle of Man.
They are well regulated by the Prudential Regulation Authority as well as the Financial Conduct Authority and more. On top of this, it’s a part of the Financial Ombudsman Service and the Financial Services Compensation Scheme.
As with the previous examples in this guide, small business owners in Britain will be reviewed — information about your business, credit score and net profit versus revenue. And interest rates will be variable according to your circumstances — possibly ranging from between three months to 5 years.
This means you could potentially take out a short-term or long-term loan. A few ways uses can possibly make for your loan include purchasing equipment, hiring staff, adding inventory, establishing a retail store, growing your business, purchasing land or property and more.
Overall, interest rates may be highly aggressive due to very pressing market conditions.
11. Barclays
According to Barclay’s own breakdown of its story and history, it began with a collaboration between two bankers, John Freame and Thomas Gold.
Both were in business in London in 1690. John’s son later partnered up with his brother-in-law, James Barclay — and the name stuck ever since.
Over the centuries, the company enjoyed multiple financial events, global wars and revolutions in industry and agriculture and technology. The original business between John and Thomas was strengthened due to communications with the Quaker religious organisation.
You could say that the true formation of the Barclays Bank group started in 1896 when several banks in English and London provinces United under the name Barclays and Co.
The bank expanded in the following decades, becoming nationwide.
Today, Barclays is listed on the London Stock Exchange and is also part of the FTSE 100 Index. With a secondary listing on the New York Stock Exchange. Currently operating in more than 40 countries, with over 80,000 staff — it’s the fifth-biggest bank in Europe according to the value of all of its assets.
Services
As with HSBC, this is a goliath. The disadvantage of this is that you may receive a less personable service.
However, as we are talking about debt, what may be most important is the degree of counterparty risk (how likely is the Barclays bank to breach contractual terms or spike interest rates during your contract length), level of regulatory fitness and range of offerings of small business loans. In this sense, you should find a diverse set of offerings.
With the current market volatility that has already seen Lloyds shut down 60 of its branches in Q2 2022, this may have a large impact on your chances of getting a loan, and the specific offer that will be made.
But the bank is experienced in handling personal loans, business loans, mortgages, savings and more. Of course, how much you can borrow will also depend on the circumstances of your business and your credit score.
How do small business loans work?
Business loans work in a similar way to personal loans for individuals. You calculate the amount of money you need to borrow, decide how long you need to pay it back for, and a lender will look at your application and decide whether to lend you money or not. If they agree to lend you the cash, they will set an interest rate which you will have to pay on top of the loan repayments.
If the loan is approved the money will be transferred to your bank account and the repayments will begin straight away. They are usually monthly over a set period of years, such as three or five years.
A business loan can be a lifeline for many small businesses and it can help you expand a business or get through a tricky period. However, if you aren't able to pay it back, there are serious financial consequences.
Pros and cons of a small business loan
There are many options with business loans so it's important to weigh up the pros and cons before you decide if they are the right option for you and your business.
| Pros | Cons |
|---|---|
| ✔️ Flexible: Commercial lenders do not actually have a say in how your business is run, or how you manage your borrowed funds. They also have no right to your profits or savings — they are only interested in your repayments. | ❌️ Lengthy review process: In terms of start-ups, commercial lenders need to adhere to rigid guidelines and need lots of information — they will need to delve deeply into your business, its structure, mission and financial information including possible investors — which can be a long review process. |
| ✔️ Lower interest: Small business loans can have low interests compared to many other funding routes, such as credit cards, and financing companies although there is a wide variance in repayment terms relative to the lender and more. | ❌️ High rates: Lender interest rates vary widely and your rates may change during the length of the contract. Small business loans also tend to have high-interest rates. |
| ✔️ Larger sums available: You may be able to access larger amounts of money with a small business loan, but the amount will depend on your business and financial history. | ❌️ You risk losing everything you own: The majority of commercial institutes will request some kind of security or collateral. If you don't keep up with repayments there is a risk you will have your assets seized. |
| ❌️ It’s a liability that affects your business valuation: The loan belongs to whoever the lenders are, be it a bank or building society. Therefore, your loan will appear as a liability on the balance sheet for your business. This impacts the potential valuation of your business. |
The verdict
We hope that section was a useful addition to your reading experience of this guide. Taking out a loan for your small business can be an attractive idea in the short term but unless you're able to pay the money off, it can push you into debt and harm your company.
That said, there are many advantages and disadvantages to small business loans.
In the end, you will need to balance out the various ratios, for instance, the pressure of repaying the loan with high-interest rates and the emotional, physical, and spiritual burden of it.
