A guide to getting a small business loan

4 Jan 2022

Gone are the days of having to go to your business bank for small business loans. As well as the usual high street institutions, there are many newer, more flexible lenders out there today who may be able to better facilitate your business finance needs.

small business loans

Business loans fall into many different categories. The type of finance you opt for will depend on your business’ circumstances and what you need the funds for. For instance, you might choose a startup loan to kickstart your small business journey, short-term finance to alleviate cash flow issues or a more long-term solution to funding growth.

There are lenders out there who specialise in small business loans. Some don’t require a minimum turnover and you don’t necessarily need to have been trading for very long to be eligible. Business finance can provide you with the financial headroom you need to:

  • recruit more staff

  • purchase equipment or machinery

  • move into a premises

  • buy more stock

  • pay for key business services

Fixed-rate vs. variable rate small business loans

The majority of small business loans come with a fixed rate of interest, meaning repayments tend to be the same each time. Variable interest rates, on the other hand, can fluctuate. 

Secured vs. unsecured small business loans

A secured business loan is backed by an asset such as property, vehicles or machinery. This provides the lender with more certainty because if the loan isn’t repaid they can claim ownership of the asset from the business borrower. 

Unsecured loans don’t require an asset, however, some lenders will need a personal guarantee (sometimes known as a ‘director’s guarantee’). Lenders can claim the director’s assets if the loan isn’t paid, so this loan type involves higher personal risk. 

Large sums of money will typically be secured, whereas lower amounts can be unsecured, and it's not uncommon for unsecured loans to have higher interest rates. 

Customer making card payment

Customer making card payment

How to get a small business loan

Before starting your search for the best small business loan for your circumstances, you should consider the following:

  • how much you would like to borrow

  • what you intend on using the finance for

  • how long you need to pay the loan back

  • the interest rate you are willing/ can afford to pay

  • whether you are willing/ able to offer collateral or a personal guarantee

The amount you can borrow is based on what the lender thinks your business can afford and it will conduct a credit check. Your credit rating will also determine what interest rates are available to you, which will have an impact on how much you repay. 

Before we get into the nitty-gritty, let’s take a look at a few of the most popular types of small business finance on the market today. 

Merchant cash advance

With this type of finance, you receive a cash advance based on the credit card sales deposited in your merchant account. 

Term loan

As the name suggests, a business term loan involves the lender providing you with a sum of money that you pay back in regular repayments at a fixed interest rate.

Invoice finance

The lender advances you the value of your invoices for a fee so that you don’t have to wait to receive payments in order to free up cash flow.

Bridging loan

A bridging loan is a type of short-term business finance designed to get you A to B by ‘bridging a gap’ in your firm’s finance while you secure longer-term funding. 

Business credit card

Company credit cards give you access to capital while helping you to improve your business credit score (as long as you make payments on time).

How to apply for a small business loan

You can go directly to a bank or alternative lender to apply for a small business loan. Or, you can use the Funding Options platform to compare over 120 lenders and find the right one for you. It’s free, doesn’t affect your credit score and we’ll help you throughout the process.

How it works:

Step 1: Simply tell us how much finance you need, when you need the funds, what you plan on using your loan for and your email address so we can correspond with you. 

Step 2: Once you’ve submitted our short query form, Our smart technology will compare up to 100+ lenders and match you with the right finance options for your needs.

Step 3: Someone from our team of Finance Experts will help you through the process, from application to receiving your funds (which you may be able to access within 24 hours).


Can you get a small business loan with bad credit?

If you’ve been trading for over a year, lenders will take into account your business credit score as well as your personal one. Traditional lenders tend to place more onus on the business credit score side of things.

Fortunately, there are alternative lenders out there who will focus on your personal score, as well as your company’s revenues and receivables records when making a decision. These lenders tend to be more flexible in terms of the security required too. 

With this in mind, it’s possible that you may be able to get a small business loan even if your credit history is chequered. Funding Options can match you with flexible lenders. You can also check out our article on 5 ways to improve your business credit rating for tips. 

Can you get a small business loan without collateral?

If a loan is ‘secured’, an asset such as property is used as security against it. It means that if the borrower defaults on the loan, the lender can seize ownership of the asset in lieu of payment. Interest rates tend to be lower as the risk to the lender is reduced.

These days, however, lots of startups and SMEs are leveraging rental models such as coworking memberships, and don’t actually own assets like property. As such, unsecured loans are becoming increasingly popular. 

Despite the fact that many small business loans which don't require collateral will still need a personal guarantee, there are lenders offering types of funding that don't require either. Unsecured loans are usually available to a wider range of businesses, however, they tend to be short-term and involve higher interest rates. 

How much can you get a small business loan for?

Depending on how much business finance you require and your business’ circumstances, you could be eligible for a business loan of anywhere between £1,000 and £20M+. How much you can borrow will also depend on the lender, and you should only take out a business loan if you have a solid plan for paying it back (plus interest).

Freelancer working on laptop

How much is a small business loan?

When working out how much a small business loan will cost, you’ll need to factor in fees as well as the interest rate attached to the loan. The interest rate will depend on the lender and type of product, as well as your business’ performance, credit history and sector.

Bear in mind that lenders will also take the following into consideration when working the rate of interest you’ll pay:

  • how much money you are borrowing

  • the repayment term (how long you have to pay it back)

  • the age of your business

  • your business’ profitability

As with most types of finance, the lower the risk to the lender, the lower the interest rate. If the lender thinks the risk of lending to your business is high, they will offer you a higher interest rate. 

It’s important to understand that when researching business loans, the APR rate you see is the rate offered to at least 51% of applicants. In other words, you could be offered a higher rate of interest than what’s advertised. 

If your small business loan has a variable interest rate, it can go up or down at any time during the loan term. 

With so many business finance options out there, it can be difficult to know where to start. Funding Options has been chosen by the government-owned British Business Bank as a designated platform to find business financing. 

See what you could be eligible for today.

Find a small business loan

Simon Cureton

Chief Executive Officer

Simon has been Chief Executive Officer at Funding Options since 2019, spearheading its transformation into a leading fintech with the launch of its Funding Cloud platform. Simon has over 27 years of experience in financial services, having held senior posts at some of the biggest players in the industry all over the world.

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