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Best Small Business Loans July 2025
Small business loans are designed to provide the funding your venture needs. The key is finding the best business loan for you.
A small business loan is a way of borrowing funds to help your business grow, improve cash flow, or get off the ground.
Several types of loans for small businesses are available. Which is right for you depends mainly on your business, the reason you need the loan, and the amount you want to borrow.
How do small business loans work?
When you take out a small business loan, the provider lends your business a sum of money. The amount that is borrowed, plus the interest payable on that loan amount, must then be paid back in regular instalments over an agreed period of time.
This loan term is often several years – some loans can be repaid over 25 or 30 years. Or if you want a short-term loan, some lenders offer terms of three months or shorter.
But once all of the repayments have been made, everything that is owed should be cleared.
Am I eligible for a small business loan?
You will usually need to be at least 18 years old, a UK resident, and have a UK-based business to be eligible for a small business loan.
Beyond this, lenders set their own qualifying criteria and will determine your eligibility for a loan based on information such as:
- how long your business has been trading
- your annual turnover
- your business and personal credit history
If you have a new or younger business, a strong business plan and proving your business is financially viable will be important.
What credit score is needed for a small business loan?
There is no definite minimum credit score you or your business needs in order to apply for a small business loan. However, a strong credit score could increase your chances of getting a loan and potentially give you access to lower interest rates.
What can small business loans be used for?
Small business loans can be used for a variety of different business-related purposes, such as:
- buying new equipment or machinery
- buying premises
- purchasing stock
- covering startup costs
- improving cash flow
- covering running costs
- hiring new employees
- buying another business
- advertising and marketing
- debt consolidation
When applying for a small business loan, it’s normal for a lender to ask how the funds being borrowed will be used. Business loans can’t be used for personal reasons, such as buying a family car or paying off personal debt.
What types of small business loans are there?
There are two main types of business loans for small businesses – unsecured and secured – and then several other options that lend on either one or both of those bases:
Unsecured business loans
An unsecured business loan can be taken out without having to use any assets from your business as security for the loan. This means unsecured loans are often quicker and easier to arrange, but interest rates may be higher. Lenders may also ask for a personal guarantee that you’ll repay the loan from your own personal funds if your business can’t.
Secured business loans
A secured business loan can only be taken out if you’re willing to put forward an asset from your business as security, such as your business premises or a piece of equipment. This often means you can borrow larger sums of money and access lower interest rates with a secured loan. However, there is also the risk that the lender will repossess the asset used as collateral if you fail to repay the loan.
Other small business loan options
- Start up loans: Start up business loans are primarily for businesses that are new or just getting going.
- Short-term business loans: A short-term business loan can provide a quick and easy way to raise funds that you want to pay back in one or two years, or maybe less.
- Sole trader business loans: Sole trader loans are tailored towards business owners who are self employed, freelancing, or contracting.
- Limited company loans: A limited company business loan is aimed specifically at businesses registered as a limited company with Companies House.
- Bad business credit loans: While poor credit can make it harder to raise finance, a bad credit business loan may be able to help.
- Lines of credit: Rather than a lump sum, a line of credit gives access to a set amount of credit from which your business can borrow as much or as little as needed. Interest is only paid on the amount that is used.
- Working capital loans: These short-term loans are designed to cover a business’s everyday running costs, such as rent and utility bills.
- Cash flow loans: A cash flow loan can typically be arranged quickly, without necessarily needing assets or a good credit history, if short term cash flows are challenging.
- Invoice financing: Invoice finance allows a business to raise funds based on the security of unpaid invoices.
- Asset financing: Asset finance provides a way to access equipment, machinery, or other assets without paying for it up front. Instead, payments are made to cover the cost over an agreed period.
- Merchant cash advances: These loans are based on your projected sales and repaid by deducting a percentage from your debit and credit card takings.
- Government loans: For example, the Growth Guarantee Scheme, which allows small businesses to access various funding options.
How to get a small business loan through NerdWallet UK
We can help you find the best small business loans for you and your business. You’ll also be matched with lenders from our panel that offer you the best chance of acceptance. To see the funding options open to you, without affecting your credit score:
- Answer a few questions about you and your business, so we know what to look for.
- Get matched instantly with suitable lenders and loans that you’re eligible for.
- Compare loans and apply to your chosen provider, with forms pre-filled using details you’ve provided already.
» COMPARE: Find the right loan for your small business
Pros and cons of small business loans
Advantages
- Expand and grow: Cover the cost of new equipment, stock, staff or marketing that could push your business to the next level.
- Aid cash flow: Help cover day-to-day running costs, temporary or seasonal drops in revenue, or unexpected expenses.
- Better interest rates: Loan rates tend to be more favourable than on business credit cards, an overdraft, or a personal loan.
- Improve credit score: Repaying in full and on time could boost your business credit score, giving access to better loan terms in the future.
- Retain ownership: Keep full control of your business, unlike with raising funds via equity finance.
Disadvantages
- Interest payments: Paying interest adds to overall business costs and could impact cash flow.
- Credit score risk: Missing or late repayments could negatively affect your business credit score.
- May need security: Some loans require an asset, such as your business premises, as collateral for the loan, which could be lost if repayments aren’t met.
- Personal guarantees: A lender may ask for a personal guarantee, meaning loan repayments could be taken from your own personal finances if your business can’t pay.
- Fees: Charges may be payable for repaying early or defaulting on your loan.
What do different lenders have to offer? See our business loan lender reviews
Small business loan FAQs
Small business loan interest rates tend to range from 6% to 20% APR, but may be higher or lower. Rates can differ widely depending on the lender, loan type, and your business’s finances, credit score and forecasts.
An unsecured business loan tends to be the easiest type of business loan to get. This type of loan may need a business owner to provide a personal guarantee, but doesn’t usually require any collateral or security for the loan.
Depending on the lender, small business loans tend to range anywhere from £1,000 to £1 million, or much higher. The maximum amount you can borrow will depend on factors such as your business turnover, credit score and type of loan. Secured loans tend to allow the largest borrowing amounts.
» MORE: Try our business loan calculator
It may be possible to get a small business loan in a matter of hours or it could take a few weeks. Much depends on the lender, the type of loan (secured loans tend to take longer), and the information you provide with your application. Applying for an online business loan is often fastest.
Exact requirements differ between lenders but some of the documents you can expect to be asked to provide include recent bank statements, financial accounts, tax returns and company documents. An up-to-date business plan and financial forecasts are also usually needed.
» MORE: How to get a business loan
The minimum amount required as a down payment can vary between lenders and business loan types. Some secured business loans may require a large downpayment as security for the loan, while unsecured business loans don’t usually require a downpayment.
You could still get a small business loan, even if you or your business has a less-than-perfect credit history. There are some specialist lenders for small business loans with bad credit. However, you are likely to face higher interest rates than a business with a better credit rating. The lender may also require some form of security or personal guarantee.
Getting a small business loan may be worth considering if you need funding to help your business expand or overcome short-term financial challenges. Where a small business loan is unlikely to be right for you is if you don’t think you could afford the loan repayments or your business has existing debts you’re struggling to meet.
Dive even deeper
Compare Unsecured Business Loans
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