Business loans for small businesses in the UK
By Helm, Funding Specialist
- Small businesses have more funding options than ever before
- Alternative lenders often suit small businesses better than banks
- You do not need perfect credit to access business funding
- Merchant cash advances and revenue-based finance are popular with SMEs
- Speed and flexibility are often more important than the lowest rate
Running a small business in the UK means constantly balancing ambition with limited resources. Whether you need to buy stock, invest in marketing, hire staff, or cover a seasonal gap, a business loan can provide the capital you need to move forward.
But with so many options available, how do you choose the right one? This guide walks through the best business loan options for UK small businesses.
Why banks often reject small businesses
Despite government initiatives to support small business lending, many UK banks remain cautious. Common reasons for rejection include:
- Insufficient trading history (under 2 years)
- Low or inconsistent revenue
- Poor personal or business credit scores
- Lack of assets to offer as security
- Industry perceived as high risk
- Incomplete or informal financial records
Best loan options for small businesses
The good news is that banks are not your only option. Here are the most popular choices for UK small businesses.
| Option | Amount | Speed | Best For |
|---|---|---|---|
| Merchant cash advance | £10,000 to £300,000 | 24 to 48 hours | Card-processing businesses |
| Unsecured business loan | £1,000 to £500,000 | 1 to 5 days | Businesses without collateral |
| Revenue-based finance | £10,000 to £300,000 | 24 to 72 hours | Consistent-revenue businesses |
| Start Up Loan | Up to £25,000 | 2 to 6 weeks | New businesses under 3 years |
| Business overdraft | £1,000 to £50,000 | 1 to 2 weeks | Short-term cash flow gaps |
| Peer-to-peer lending | £10,000 to £500,000 | 1 to 2 weeks | Businesses with a good pitch |
How to improve your chances of approval
Regardless of which type of loan you apply for, these tips will help you maximise your chances.
- Apply when your revenue is at its strongest
- Keep your business bank account in good order
- Pay existing debts on time
- Prepare clear, up-to-date financial information
- Choose a lender that specialises in your business size and type
- Apply to lenders suited to your credit profile
What can small businesses use a loan for?
Most business loans do not restrict how you use the funds. Common uses for small businesses include:
- Purchasing stock or inventory
- Investing in marketing and advertising
- Refurbishing or expanding premises
- Hiring and training staff
- Buying equipment or technology
- Covering seasonal cash flow gaps
- Launching new products or services
How much can a small business borrow?
The amount depends on the loan type and your business profile. As a rough guide, most alternative lenders offer between one and two times your monthly revenue. Banks may offer more but require stronger financial credentials.
For a small business processing £10,000 per month in card payments, a merchant cash advance of £10,000 to £15,000 is typical. For businesses with higher revenue, significantly larger amounts are available.
Frequently asked questions
What is the best business loan for a small business?
It depends on your situation. For speed and flexibility, merchant cash advances and revenue-based finance are popular. For the lowest cost, a bank loan or government-backed Start Up Loan may be better if you qualify.
Can a sole trader get a business loan?
Yes. Sole traders can access most types of business finance, including merchant cash advances, unsecured loans, and government-backed schemes.
How quickly can a small business get a loan?
With alternative lenders, funding can arrive within 24 to 48 hours. Bank loans typically take 2 to 8 weeks.
Do I need collateral for a small business loan?
Not necessarily. Unsecured loans, merchant cash advances, and revenue-based finance do not require collateral. Only secured loans require you to pledge assets.