How to find the right small-business loan for your company
If you're a small business owner, you might need a loan to keep your business running. Our guide explains how it all works.
Key takeaways
Small business loans are designed to support small companies with operational expenses
When considering small-business loans, it’s essential to weigh the advantages and disadvantages
You can apply online, over the phone, or in person (if the lender has a physical branch)
What are small-business loans?
A small-business loan is a type of business finance designed to support smaller companies with day-to-day costs or long-term investments. You borrow a fixed amount and repay it in monthly instalments over a set period.
Most small-business loans are unsecured, meaning you won’t need to offer property or equipment as collateral. But many lenders will ask you to sign a personal guarantee, making you personally responsible for the debt if your business can’t repay.
Gross lending to SMEs by the main retail banks rose by 14% in Q1 2025 compared to the previous year, amounting to just over £4.6 billion.
What can small-business loans be used for?
You can use a small-business loan for almost any business-related cost. Common examples include:
Paying or training staff to support team growth or improve skills
Buying tools or equipment to upgrade your setup or invest in new tech
Expanding your business by moving into bigger premises or taking on more projects
Marketing and advertising to attract new customers with extra visibility
Boosting cashflow to cover lean periods or seasonal dips
What types of businesses qualify for a small business loan?
Most small UK-based businesses can apply, as long as they meet a lender’s basic criteria.
SMEs (small and medium enterprises)
Employees: Up to 250
Turnover: Under €50 million
Loans: Can access larger loans if closer to the upper end of SME size
Small businesses
Employees: Under 50
Turnover: Under €10 million
Loans: Typically qualify for small-business loan products
Micro businesses
Employees: Under 10
Turnover: Under €2 million
Loans: Can apply if they meet lender eligibility
Sole traders
Structure: Self-employed individuals
Loans: Often eligible for small-business loans, especially with steady income
Limited companies
Structure: Private companies with shareholders
Loans: Eligible if they meet small-business size criteria
What are the pros and cons of small-business loans?
It’s good to consider the pros and cons of taking out a small business loan before you apply:
Pros | Cons |
|---|---|
They can help manage cash flow during slower periods | Higher interest rates if you have poor credit |
You won’t usually need collateral | Terms can vary and aren’t always flexible |
You can use these funds to drive business growth |
How much can I borrow and how long for?
Small-business loans typically range from £1,000 to £50,000, depending on your revenue and trading history. The more you want to borrow, the stronger your business case will need to be - and lenders might require security for larger amounts.
Loan terms vary widely from one year to 25+ years, while you may also be able to refinance in the future if you become eligible for better rates.
Is my business eligible?
Lenders will have different eligibility requirements, but most will want the following:
UK registration and trading address
A minimum trading history, usually around 6-12 months
A minimum monthly revenue
A strong or improving credit score
A business plan or forecasting
Tax returns and business bank statements
How do I apply for a small business loan?
Most applications will follow these basic steps, though it can vary by lender:
Apply online, by phone or in person
Submit your business details, including revenue, trading history and reason for the loan
Undergo lender checks, including credit checks and affordability assessments
Get a decision on approval - some even give same-day approval
Alternatives to business loans
Here are some other ways to raise money for your business:
Invoice financing
Invoice financing is a type of lending where a third party, usually a bank, buys up unpaid invoices or lends money against the funds that will be received in the future from clients.
Business grants
Business grants refer to money that’s awarded to businesses to help them expand. The upside of getting money through a business grant is that you won’t have to pay it back.
Business credit cards
Business credit cards are made to use by an individual or a business and allow you to make purchases and pay them off at a later date. Business credit cards can come with perks such as travel insurance and cashback.
A business credit card can help to control your company’s cashflow, but it could also improve your company’s credit score if you keep up with card repayments.
Crowdfunding
Crowdfunding is a way to raise capital for your business from many people. The downside of funding a business this way is it can be a slower way to gather funds than other money-raising methods.
Overdrafts
Some business current accounts come with an overdraft, it’s important to remember this is a short term borrowing solution, as an overdraft can come with heavy interest charges.
Other useful guides
We have a range of guides to help you know more about business loans:
Bad credit business loans explained
Secured business loans explained
How to compare small-business loans with MoneySuperMarket
At MoneySuperMarket, we are always happy to help. Our aim is to help you navigate the loan market and compare options in an easy and straightforward way.
Tell us what you're looking for: We’ll ask a few simple questions about how much you want to borrow, your business, and what the money will be used for.
Compare deals: We’ll show you a list of potential deals including the interest rate and how much your monthly repayments might be.
Apply in minutes: Once happy with your choice, you can click through to apply quickly and easily online. Then wait for your funds to arrive.
Frequently asked questions
What fees should I watch out for?
If you decide to take out a small-business loan, there is a chance you may have to face the following fees:
Application fee. Also known as ‘initial fee’ or ‘arrangement fee’, this specific type of charge can amount to as much as 5% of the loan amount. You won’t necessarily have to pay it upfront. It can be added to your monthly repayments and spread over the duration of your loan term.
Early redemption charge. The early redemption charge (ERC) is a fee if you decide to repay the loan in full before the end of the agreed term. Not all lenders charge an ERC, so make sure to read all the terms and conditions before you apply.
What is the difference between a business and a personal loan?
Business and personal loans work in a similar way. The main difference is that business funding, including small-business loans, is reserved for commercial purposes only. Personal loans, instead, are intended for other types of expenses, from home repairs to personal vehicle replacements.
Generally, lenders impose restrictions on what you can use your loan for. So, if you take out a personal loan, you won’t be allowed to use it for business reasons and vice versa.
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Mehdi Punjwani
Insurance specialist
Mehdi is a financial writer and editor with over six years of experience in personal finance. He has written for organisations and publications including Equifax, The AA, and USAToday, covering a...
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Collette Shackleton
Content Writer
Collette Shackleton is a highly skilled Content Writer who has over nine years’ experience creating helpful and engaging personal finance content for consumers. Collette shares her experience as a...
