Learnbonds UK

Best Business Loan Providers & Sites in 2019

15. January 2020

Whether your business is just kicking off or you’re a medium-sized company looking to invest in a new venture, a business loan could be just what you need to help finance new capital. Business loans come in a range of shapes and sizes, starting from a small boost of a few thousand pounds – up to a million pounds and more. The size of the loan and underlying terms that come with the loan will typically be based on the health of your company. In other words, the stronger your balance sheet looks in the eyes of lenders, the more favourable the terms will be.

With that being said, business loans are slightly more complex in comparison to personal loans. As such, we have created the ultimate guide to Business Loans. Within it, we’ll tell you everything that we think you should know – such as how business loans work, who they are suitable for, how much you can borrow, what interest you’ll typically pay, and more.

Note: While some business loans are unsecured – meaning that you won’t need to put any assets up as security to obtain the loan, others aren’t. As such, if you do obtain a secured loan and your business subsequently falls behind on the payments, you could lose the underlying asset.

What are the Pros and Cons of Business Loans?

The Pros

  • Suitable for businesses of all sizes
  • Perfect if your business has just launched and you require a cash flow boost
  • Great if your business is looking to invest in a new venture or project
  • Range of loan sizes and terms available
  • Most business loans can be applied for online – no need to visit a banking branch

The Cons

  • If your business loan is secured, you could lose the security if you fall behind on your repayments

How to Apply for a Business Loan? Read our Step-by-step Guide:

If you’ve never applied for a business loan before, then you should know that the process could differ from that of a more conventional personal loan. For example, if your business is trading as a limited company, then it’s likely that the lender will be more focused on your balance sheet, as opposed to your personal assets. On the contrary, if you are self-employed, or your business has just launched as a start-up, then the lender might need to unravel your personal creditworthiness.

Nevertheless, to give you an idea as to how the business loan process typically works, we have outlined the fundamentals below.

Step 1: Find a suitable lender

First and foremost, you will need to find a business loan provider that is suitable for your individual circumstances. You will need to look at key metrics such as how much the provider is able to lend your business, as well as the rate of interest they typically charge. In some cases, you might be best off sticking with a traditional high street bank or building society for your business loan needs, as the APR rates on offer will likely be very competitive. However, if your business is yet to take off, you might need to consider a specialist lender.

Note: In order to help you along the way, we have listed the best three business loan providers at the time of writing in the section below. While these lenders might not be suitable for all business types, it should give you an idea as to some of the factors you need to look out for when choosing a loan provider.

Step 2: Start the application process

Once you have found a suitable business loan provider, you will then need to get the application started. Initially, you will need to let the lender know how much you wish to borrow, and for how long. Make sure that your repayment terms are sufficient to meet your business’s cash flow forecast.

Step 3: Provide details about your business

You will now need to provide some information about you and your business. Firstly, you’ll need to enter details about your personal identity, such as your full name, home address, date of birth, and contact details. Next, you’ll then need to enter information about your company. This will include the trading name of your company, the status of the company (sold trader, limited liability, etc), the registered address of your company, and your company’s contact details.

You will also need to provide some detailed information about your company’s current financial standing. The good news for you is that some lenders are able to extract the required information from third-party sources, such as your previously filled accounts at Company House, as well as specialist credit bureaus.

Step 4: Provide documentation

Although business loan providers have a range of external third-party sources that they can use to verify your information electronically, it is likely that you will still need to upload some supporting documentation. The specific documents will vary depending on the type of business loan, the size of the loan, and the type of company set-up you have. If you are a sole trader or your company was only launched recently, you might need to provide documentation regarding your personal financial standing, such as bank account statements or homeowner ownership deeds.

Step 5: View your terms and sign the business loan agreement

Once you have provided the required information and supporting documentation, the lender should be able to give you a decision on your business loan application within 1 working day. If your application was successful, then you will be presented with your loan terms.

This will include the amount that the loan provider is able to lend you, the underlying APR rate, when you need to make your repayments, and whether or not the loan is secured or unsecured. If you’re happy with the terms outlined, then you’ll need to sign a digital loan agreement. Finally, the lender will then transfer the funds into your business bank account – which typically happens within 1-2 working days.

Best 3 business loan providers

There are now heaps of options available to you when it comes to choosing a business loan provider. However, the specific lender that you go with will depend on a range of factors, such as the size of your business, the type of business loan you require, how much you need to borrow, and the current financial standing of your company. Nevertheless, we have listed the best 3 providers that we think should suit most small-to-medium businesses in the UK.

Before you peruse through our recommended providers, be sure to read the criteria below that we typically look for in a lender.

Criteria used to rank the best business loan providers

❓Lenders with the most competitive interest rates

❓How much the lender is able to offer

❓The type of business loans available

❓What financial standing your company needs to have to be eligible

❓Whether you need to put up assets as security

1. HSBC – Best for small business loans

If your company was recently launched, or you’re simply a small company that requires a bit of extra funding, then it might be worth taking out a conventional business loan with HSBC. The high street bank is currently offering business loans from just £1,000, up to a maximum of £25,000. The reason that we have chosen HSBC as the best option for small businesses is that the representative APR rate of 7.4% is very competitive.

Moreover, the loan comes with great flexibility, not least because you can borrow the funds from just 12 months, up to a maximum term of 10 years. HSBC will also give you three months before you will be required to make the first repayment, and you won’t be charged for overpayments, or repaying the loan off early. The loan repayments will be fixed each month, meaning that your business can budget efficiently.

Key Points:

? Business loans of between £1,000 and £25,000

? Advertised APR interest rate of 7.4%

? Perfect for small businesses

? Loan terms of between 1 – 10 years

? 3 months before your first repayment is due

2. TSB Bank – Best for larger loan amounts

If the £25,000 cap being offered by HSBC doesn’t quite meet the funding size that your company requires, then you might want to check out what TSB Bank has to offer. In a nutshell, TSB Bank business loans start from £25,000, up to a maximum of £1 million. The loans are somewhat flexible at TSB, meaning that the specific terms will depend on a range of metrics – such as how long your company has been trading for, the type of company set-up you have, and how much you need to borrow.

Moreover, TSB states that in some cases, the business loan might need to be packaged as a secured loan, meaning that you’ll need to put an asset up as security. This is likely to be the case if your business is just starting out, or if the strength of your balance sheet is less than ideal. In terms of the specifics, TSB can facilitate business loans from just 1 year, up to a maximum of 25 years. Moreover, the specific APR rate will depend on your business’s creditworthiness. Finally, it is also important that you factor in the arrangement fee charged by TSB on its business loans, which can be as much as 1.5% of the total loan size.

Key Points:

? Business loans of between £25,000 and £1 million

? APR rate dependent on the creditworthiness of your business

? Perfect if your business requires a loan of significant size

? Loan terms of between 1 – 25 years

? An arrangement fee of up to 1.5% might be required

3. Barclays – Best if you require invoice factoring

If the biggest roadblock facing your business is being able to cover the costs of purchase orders, then you will be best off going down the invoice factoring route. In doing so, you will only borrow funds as and when you receive a new purchase order, and as long as your customer settles the invoice in a reasonable timeframe, you can then repay the funds back quickly. High street bank Barclays is offering invoice finance of up to 90% of the purchase order amount. As such, if your order is worth £100,000, then Barclays can transfer £90,000 into your business account in quick fashion.

In order to qualify with Barclays, you will need to be in the business of selling goods or services to other businesses, and your company needs to be a limited company or limited liability partnership. As such, if you’re a sole trader, you won’t be able to apply. Most importantly, you need to prove to Barclays that your business generates at least £100,000 per year in revenues, and none of your company directors can have previously have been made bankrupt. Finally, the interest that you pay on the borrowed funds will depend on the creditworthiness of your company.

Key Points:

? Invoice finance of up to 90% of the purchase order amount

? APR rate dependent on the creditworthiness of your business

? Perfect if your business needs help meeting large orders

? Funds usually released quickly

? Your company needs to be generating more than £100,000 per year in revenues

What is a Business Loan?

In its most basic form, a business loan is a type of financing that is tailored towards businesses. In some cases, this could be a few thousand pounds for a new business start-up, right up to a couple of million of pounds for an established company of significant size. However, it is important to note that business loans come with a range of shapes and sizes. While the most common business loan type is that of a conventional bank or building society loan, other options exist, too. For example, you also have the option of invoice factoring, a business overdraft, rolling credit facilities, and even asset backed loans.

As such, we have listed the main business loan types below for you to consider.

✔️ Bank Loans 

As noted above, the most common type of business financing is that of a conventional loan. This will usually come from a traditional bank or building society, although in some cases, it could be from a specialist lender. This is likely to be the case if your business was recently launched, or if your business is currently in an adverse financial position.

The fundamentals of a business loan from a high street lender will work much in the same way as any other loan type. In other words, you will borrow a fixed amount of money at a fixed rate of interest. You will then make your repayments each and every month until the loan is repaid in full.

✔️ Invoice Factoring

The second option that your business has at its disposal is that of invoice factoring. This is highly useful if your business is getting a lot of orders, but you don’t quite have the cash flow levels to facilitate the order. For example, this could include the costs of manufacturing the goods, or the costs of ordering them in from a supplier.

Either way, invoice factoring will see the lender give you an amount of cash that is proportionate to the size of your purchase order. This can be as high as 95% of the order amount, which should be sufficient for you to meet the costs of facilitating the order.

Here’s a quick example of how invoice factoring works in the context of a business loan.

  1. Your paper merchant business receives an order from a customer to the value of £50,000
  2. You need to order the stock in from a supplier, which will cost you £30,000. However,  your business doesn’t have enough cash to do this
  3. As such, you present the purchase order that your customer sent you for £50,000 to your invoice factoring provider
  4. Your invoice factoring agreement allows you to receive 80% of the purchase order value upfront
  5. This means that the lender can transfer up to £40,000 (80% of £50,000) into your account, although you only request £30,000 to cover the cost of the order
  6. Once you receive the cash, you then pay your supplier and deliver the goods to your customer
  7. As soon as your customer pays you, you can then forward of the £30,000 that you borrowed from the invoice factoring company, plus the interest that came with the loan

✔️ Revolving Credit Facilities

If your business is unable to predict the future with sales and operations, then it might be worth considering a business loan in the form of revolving credit facilities. In a nutshell, this operates in a similar nature to a conventional overdraft, insofar that the lender will give you a draw-down limit.

For example, you might receive a credit facility for £25,000, which is the most that you will be able to utilize. The great thing about revolving credit facilities is that you only pay interest when you actually draw down the money. As such, it acts as a safety net in times that you need to meet financial obligations when cash flow levels are unable to do this.


How much can I borrow via a business loan?

The specific amount that you are able to borrow will depend on a full range of factors. This will include the type of company set-up you have (limited company, sole trader, etc), the creditworthiness of your business, and the type of business loan you are looking to obtain. With that being said, business loans usually start from just £1,000, all the way up to a million pounds-plus..

What is invoice factoring?

In its most basic form, invoice factoring is where the loan provider lends you funds against a purchase order. For example, if you receive a new order from a customer and you need financial assistance to meet the order in full, the lender will give you a percentage of the total order amount upfront as cash. Invoice factoring is perfect for companies that struggle with cash flow - especially startups.

Can I get a business loan if I am a sole trader?

There are plenty of lenders out there that are willing to lend to sole traders. However, the process is going to be somewhat different to that of a business that is registered as a limited liability company. Most crucially, as a sole trader you will likely need to put your personal assets up as security in order to get the loan, and the amount that you will be able to get is likely to be much lower than an established limited company.

Kane Pepi

Kane holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.