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Small Business Loans UK - 5 Things To Know
Statistics published by the UK government at the tail end of 2023 show that out of the 5.6 million private sector businesses in the country, 5.51 million of them are classed as ‘small businesses’, meaning they have less than 50 employees.
Given that 95.4% of private sector companies are in this class, it’s no surprise that there’s a whole financial industry set up to support them. Small business loans in the UK have developed over decades to become a range of customisable products designed to suit any business, and at Clifton Private Finance, we have the experience needed to help you get the one that’s right for you.
Read on to find out more, and please book a consultation with an adviser if you'd like a free, no-obligation call to chat through your potential options.
Related: 51% of SME Finance Provided by Specialist Lenders
1. Who Can Get a Small Business Loan in the UK?
2. How Much Are Small Business Loans (UK)?
3. UK Government Loans for Small Businesses
4. Cash Flow Loans for UK-Based Businesses
5. How To Apply for UK Small Business Loans
Who Can Get a Small Business Loan in the UK?
The first question on anyone’s lips is ‘can I get a small business loan?’. And the answer? Almost certainly, yes.
If you own or are the director of a small business, then there are loans out there for you. You don’t need to have a limited company - plenty of small business loans in the UK are available for sole traders and partnerships - and you don’t need to have loads of capital or years of accounting to show.
What you do need is a UK-based business, the ability to present your business to a lender, and a means to repay the loan.
Here are the three criteria:
Being a UK-based business
While not all small business loans in the UK require your business to be registered in the UK, many do, especially those that are backed by government loan schemes.
Having a UK-based business can make it a lot easier for lenders to ascertain your business credit history, which makes them able to more accurately determine your risk level - and not being able to determine your risk level is the same as saying ‘really risky’!
That all said, at Clifton Private Finance, we have relationships with many lenders who are happy to deal with companies based in Europe and around the world. Why not speak to one of our international specialists if you’re looking for a UK small business loan from outside the country?
Presenting your business
Obtaining a loan is all about risk assessment. If you are low-risk, banks and other financial institutions are happy to lend you money - after all, they know they’re getting it back. High risk ventures are treated warily, and can lead to applications being rejected or terms being less favourable, including larger business loan interest rates.
This means you want to provide any prospective lender with everything they need to see your business in a positive light and the key to that is your business plan. A well developed business plan with comprehensive financial forecasting will help your small business loan go through without a problem.
Having the means to repay the loan
Your accounts are of the greatest interest to any lender, and it starts with your business credit score. Calculated based on your debt and credit history, your business credit score provides a snapshot answer to the question ‘can I trust this business?’.
Backed up with some great financial statements and a well thought-out forecast, you will show that you can afford the monthly repayments on your small business loan.
Of course, there’s one other thing to consider - can you really afford it? Being offered a larger sum than you were looking for may be enticing, but it’s sensible to only take on the financial responsibility you need. Make sure that you are confident you’ll be able to make repayments - even if a few months goes by when things are lean - and you’re in the right place to take out a loan.
How Much Could You Borrow?
Use our business loan calculator below to see what you could borrow.
How Much Are Small Business Loans (UK)?
Small business loans in the UK range from £1,000 up to £25 million - though most people don’t need to borrow quite that much.
The size of the loan you will be able to secure for your business is going to be affected by seven key factors, including:
- The size of your business - Lenders are all up for expansion, but they don’t expect you to try to go from nothing to a multinational corporation in one jump. Consider the size of your business and the realistic level of loan you need.
- Your business credit history - Your credit score is a key piece of the puzzle. Make sure you maintain a good relationship with any current creditors and don’t stretch your current credit to breaking point. If you’ve been struggling, consider spending three months or more repairing your credit score before applying for a small business loan.
- Your business sector - Different areas of business are proven to have different risk for lender. While there’s little you can do to change the nature of your business, set your sights on a loan appropriate to your business sector.
- Your cash flow - If you have good cash flow, you are far more likely to be offered a favourable loan.
- Assets for collateral - Secured loans need to be guaranteed with assets; property, machinery, and even intangible assets such as accounts receivable, are all frequently used to offset the lender’s risk.
- Loan use - While many loans are unrestricted in their use, understanding what you plan to use the loan for is key for lender’s risk assessment. Loans that are for undertakings that can be seen to generate return are more viable than those that have no set usage.
- Personal (director’s) guarantee - A personal or director’s guarantee means that you agree to repay the loan personally should the business enter liquidation. Many small business loans in the UK, especially unsecured ones, will seek a personal guarantee. Tip: You can get Personal Guarantee Insurance to protect you from the risks, too.
UK Government Loans for Small Businesses
One place that small business owners in the UK turn to for help is the UK government itself. With a continued interest in helping small businesses grow, there is a lot of support from the government, both in terms of loans and other financial assistance.
This takes the form of direct loans, such as the government start up loan, a range of grants to help startup businesses, tax offsetting such as the R&D tax credit for innovators, and business advice and support.
Cash Flow Loans for UK-Based Businesses
One of the biggest issues for small businesses is that of cash flow. Making sure that there’s enough cash in the bank to pay the day-to-day running costs can be tight, especially when so many unforeseen problems can arise.
While many small business loans from UK lenders are considered ‘expansion’ loans, utilised for helping your business grow to the next level by investing in tangible assets, such as stock or new equipment, a range of small business loans exist for the explicit purpose of smoothing cash flow.
Typically short-term, and with flexible structures to mould around your business need, these include:
- Merchant cash advance - A loan based on the future takings of your customers’ card transaction that’s offered by many card transaction providers, merchant cash advance is excellent at helping seasonal businesses see their way through the off-season months.
- Invoice financing - Developed to help B2B businesses unlock money tied up in unpaid invoices, invoice financing can be set up as a longer term revolving credit arrangement for complete flexibility of use.
- Tax loans - Ensuring that your responsibilities to HMRC are never paid late, corporation tax loans and VAT loans can spread the cost of tax bills to make them easier to digest over time.
- Bridging loans - A powerful loan structure that can provide significant capital to enable your business to take advantage of unexpected opportunities even when cash flow is tight, business bridging loans let you say ‘yes’ to new projects, flash stock sale offers, and expansion opportunities that might otherwise be out of reach.
See the latest market news below.
2024 Business Finance Market Update
In the past year, business finance saw significant growth, perhaps surprisingly driven by challenger lenders and alternative finance providers. Many of these lenders reached their largest milestones in 2024, primarily through supporting SMEs that may have struggled to access traditional funding elsewhere.
Businesses are continuing to face significant economic challenges carried over from 2023. High inflation, supply chain disruptions, and geopolitical tensions persist, which have complicated financial planning and made it difficult for businesses to acquire funding.
But the Bank of England has cut its base interest rate for the first time in 4 years, signalling a cautious shift toward economic stabilisation after years of inflationary pressure. Further cuts are anticipated, and businesses can expect a flurry of spending in the coming months.
As well as this, a number of banks and large firms seem to be racing to the finish line to implement generative AI and new technology that could streamline business and boost profits. Enhancing tech in banking looks like a win-win for lenders and borrowers, offering more personalised financial solutions and a quicker, more secure process.
In the tech industry, investments in AI are reshaping business. Tech giants like Alphabet, Amazon, and Microsoft have seen their market values surge, driven by the rush to implement AI.
How To Apply for UK Small Business Loans
For a successful small business loan application, it’s best to take the time to research the loan that best suits your business, taking into account repayment terms, interest rates, eligibility criteria, and the long-term impact on your company cash flow.
Depending on the size of the loan and your business credit rating, you may be asked for a personal guarantee or to consider an asset-based secured business loan. A comprehensive business plan will help, too, and is essential in many applications.
If all this sounds a little complicated, why not let us do the hard work for you? Clifton Private Finance is an experienced business finance broker; we have all the experience to find the perfect loan for you, tailored precisely for your business need. Contact us today to find out more.
