Our Pick Of The Best Small Business Loans 2024
There are around 5.6 million small businesses in the UK, according to Government figures. But one of the key challenges for small businesses is accessing finance to fund expansion.
If a business doesn’t have sufficient cash reserves to fund its plans, a small business loan can bridge the gap. Indeed, a recent report from the British Business Bank (using Bank of England data) shows that total lending by banks to small and medium-sized enterprises exceeded £59 billion in 2023.
- Featured Partner
- What’s the best loan for your small business?
- Our Top Small Business Loans
- What’s our methodology?
- What is a small business loan?
- Where can I get a small business loan?
- What types of small business loans are there?
- Pros and cons of small business loans
- What are the alternatives to a small business loan?
- How do I get a small business loan?
What’s the best loan for your small business?
It’s worth taking some time to compare the different options available as deals vary by interest rate, terms, fees and – importantly – the level of security required. We’ve carried out some research (August 2024) to uncover what we consider to be the best loans for small businesses and have rounded up our findings, below. Annual Percentage Rates (APRs) listed are representative which means you could be offered higher depending on your individual circumstances.
Our Top Small Business Loans
* Your home is at risk if you do not keep up repayments on a loan secured against it
What’s our methodology?
To arrive at our Forbes Advisor star ratings, we considered the following criteria for each small business loan provider, which was overlaid with editorial judgement:
- representative APR: the representative annual cost of the loan (as explained above)
- size of loan: the minimum to maximum amount that could be borrowed
- length of loan: the flexibility on the length of repayment periods available
- other factors: we also considered other differentiating factors such as loan fees, early repayment charges, the ability to make overpayments, terms of any security and any minimum trading period or turnover requirements.
What is a small business loan?
A small business loan is a cash loan that provides a way for small business owners to access finance to cover their operational costs and expand their business. Small business loans are typically for a fixed term, during which time you repay both the capital and the interest.
The interest rate is often fixed (i.e. remains the same even if the base rate changes) but can be variable. Small business loans can be unsecured or secured against an asset such as your house or by a personal guarantee.
Where can I get a small business loan?
Small business loans are available from mainstream banks and building societies. Some loans are specifically designed for small businesses, while others are conventional business loans just with lower minimum amounts.
Specialist and online lenders may also offer small business loans. However, these tend to be at higher interest rates than the high-street banks.
If you’re considering taking out a small business loan, it’s advisable to compare all of the options available to find the best rate and terms for your particular circumstances.
If you’ve only been trading for a short period of time, see our Best Loans For Start-up Businesses.
What types of small business loans are there?
There are three main types of small business loans:
- secured business loans: these are secured against assets in the business or personal assets, such as residential property. On the whole, secured loans allow businesses to borrow larger amounts. However, this is a high-risk option as the lender has the right to sell the assets if the business fails to meet its repayments
- unsecured business loans: these are not secured against assets but, as a result, may be more difficult to obtain than secured loan
- start-up business loans: these are for new businesses that have been trading for less than 2-3 years. These include the government-backed Start Up Loan which is unsecured and at a competitive rate of interest.
Pros and cons of small business loans
Some of the advantages of business loans include:
- the ability to borrow large sums of money which can be used to finance expansion
- funds could be at lower interest rates than other forms of borrowing, such as business credit cards, with the option of fixed or variable interest rates
- clear interest and capital repayments for fixed rate loans
- the option of long-term borrowing, with terms of up to 25 years
- avoids the need to dilute owners’ shareholdings by bringing in new investors.
However, it’s also worth bearing in mind the following disadvantages:
- may ask for personal guarantees or security over personal assets such as property
- not as flexible as some forms of borrowing as the amount is set at the beginning of the loan, with better options for financing temporary cashflow issues
- minimum loan amount may be higher than you need
- interest rates can rise for variable rate loans
- eligibility requirements can be hard to achieve and higher interest rates may be charged for businesses with poorer credit rating
- possible early repayment penalties.
What are the alternatives to a small business loan?
- crowdfunding: businesses pitch their ideas to a ‘crowd’ of small investors who become shareholders in the business. Crowdfunding has become very popular in the UK, with notable successes including Scottish brewer BrewDog and challenger bank Monzo
- business credit cards: these can be a quick way of accessing smaller sums of money, however, they typically charge a high interest rate if the balance isn’t repaid in full at the end of the month. We’ve also produced a guide to our pick of the best business credit cards
- overdrafts: some business current accounts have interest-free or low-interest overdrafts which can be useful for businesses wanting to borrow small amounts of money for a short period
- invoice finance: this is a loan against money owed by customers, for example, when invoices are waiting to be paid. Once the invoice has been paid, the cash is used to repay the finance
- government grants: these may be offered to businesses in certain sectors or regions and don’t need to be repaid.
How do I get a small business loan?
The first step is to research the available options and decide on the most suitable business loan, considering rates, fees and eligibility criteria.
The next step is to gather the information needed in the application process which is set out below in the FAQ “What information will a lender require?”. This will include financial statements and information about the business and individuals.
At this point, the application can be started, either online or in person. The time between the initial application and receiving the funds varies by lender but can take from a day or two to several weeks.
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