Small business loans

A small business loan is a lump sum borrowed from a lender and repaid with interest over a set period — typically used by SMEs to fund growth, manage cash flow, or invest in equipment.

In this guide, you'll learn how small business loans work, what types are available, the potential benefits and risks, and how to decide whether one could be right for your business.

What are small business loans?

Small business loans are designed for SMEs — typically businesses with fewer than 50 employees and a turnover under £10 million. They provide access to capital that can be used for almost any legitimate business purpose, from purchasing stock and hiring staff to covering seasonal dips in revenue.

Loan amounts typically range from £1,000 to £500,000, with repayment terms from a few months to 10 years. They're offered by high-street banks, challenger banks, and specialist online lenders, each with their own eligibility criteria and pricing.

Whether you're an established SME looking to expand or a younger business needing a cash injection, a small business loan could provide the funds you need without giving up equity in your company.

How do small business loans work?

Once approved, you receive a lump sum in your business bank account. You then make regular repayments — usually monthly — over the agreed term. Interest rates may be fixed or variable, and some lenders charge arrangement fees or early repayment charges.

The amount you can borrow and the rate you're offered will depend on your trading history, annual turnover, profitability, and credit profile. Newer businesses may face stricter criteria but could still access funding through specialist lenders or government-backed schemes.

What types of small business loans are available?

Secured small business loans

Secured loans require an asset — such as property, equipment, or stock — as security. Because the lender has collateral, interest rates are often lower. However, the asset could be at risk if you can't keep up with repayments.

Unsecured small business 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. See our guide to unsecured business loans for more detail.

Short-term small business 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. See our guide to startup business loans.

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.
• Quick access — some online lenders can release funds within 24–48 hours of approval.

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 our business loan calculator below to get an idea of what a small business loan might cost. Adjust the amount, term, and interest rate to see how your monthly repayment changes — then speak to Jamie for a personalised comparison across the market.

Is my business eligible?

Eligibility criteria vary between lenders. Most will look at your trading history, annual turnover, profitability, and credit history. Many lenders require at least 1–2 years of trading, but specialist lenders and government-backed schemes may accept newer businesses.

You'll typically need to provide recent accounts, bank statements, and a business plan. Some lenders may also run a personal credit check, particularly for unsecured loans.

How do small business loans differ from other funding?

Unlike asset finance, which is tied to a specific asset, a small business loan can be used for any purpose.

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 business loans, startup business loans, and unsecured business loans helpful.