VAT Loans

What are VAT Loans?

by Mehdi Punjwani

Edited by Ceri Roberts

Updated 21 January 2026

Advertiser Disclosure

Staying on top of tax payments and VAT bills can be challenging for small businesses. However, failing to pay on time could not only mean being hit with fines from HMRC but could also have a negative impact on your business credit score. 

If paying the bill in one go would put too much strain on your cash flow, a VAT loan could be the answer. This is a type of short-term business finance designed to specifically cover VAT payments due to HMRC. It could give your business some breathing space, without impacting your cash flow. 

How does a VAT loan work?

While the exact steps will vary by provider, in most cases you’ll apply for the loan based on the VAT bill amount and, if successful, the lender will pay HMRC directly, or send you the funds so that you can pay the bill yourself. Your business will then pay back the loan plus interest in fixed monthly instalments. Typically, this type of loan is spread across a term of three, six, nine or 12 months. 

Depending on the provider, amount, and your business’s circumstances, your VAT loan may need to be secured with a business asset as collateral, or you may need to provide a personal guarantee. 

» COMPARE: Best business loans

Does my business need a VAT loan?

A VAT loan can make sense for businesses facing quarterly VAT bills when they also need to protect working capital, manage seasonal cash flow issues and fund growth. For example, it can be useful in the following circumstances: 

• For seasonal businesses such as hospitality and tourism, especially if a VAT bill lands during a quiet period.
• When businesses have been hit with an unexpected expense, such as repairs. 
• Ecommerce and retail businesses with tight margins.
• Tradespeople and contractors with irregular payment schedules and high project costs.
• Businesses with long payment terms.
• Businesses making major purchases such as commercial property with high upfront VAT costs – in this case, you might look for a VAT bridging loan.

What is a VAT bridging loan?

A VAT bridging loan is a specific type of VAT finance commonly used for large, one-off purchases like commercial assets or property. It’s designed to cover the upfront VAT cost of the purchase, filling the gap between this and the refund you get from the HMRC when you reclaim your VAT. The funds you get when you reclaim are typically used to repay the VAT bridging loan.

What are the pros and cons of VAT loans?

It’s important to consider the advantages and potential drawbacks of taking out a VAT loan before deciding if it’s right for your business:

Pros

• You’ll be able to spread the cost of a large quarterly VAT bill over more manageable monthly repayments.
• This can help reserve working capital for vital operational expenses or growth.
• It reduces the risk of missing your VAT deadline, especially as the funding is often paid promptly and directly to HMRC, which simplifies the process.

Cons

• Repayment periods are shorter, typically up to 12 months, so you’ll still need a short-term plan to repay it.
• You will need to pay interest on the loan, and rates can be higher than average as lenders tend to see VAT loans as higher risk, especially if your business has poor cash flow. 
• Depending on your personal and business circumstances, you might need to provide a personal guarantee or even a business asset as security for the loan.

Is my business eligible for a VAT loan?

Specific eligibility requirements for VAT loans will vary by provider, but generally speaking you’ll need to meet the same criteria as most other business loans. This means you’ll need to be over 18 and your business will need to be based in the UK. Your business must be VAT registered, with a minimum turnover, a consistent trading history and a good credit record. 

How do I apply for a VAT loan?

1. Work out how much you need to borrow based on your VAT bill.
2. Check eligibility and apply online – you could get a decision within hours. 
3. Once approved, your provider may pay the amount directly to HMRC or release the funds to you so that you can pay the bill yourself. 
4. You repay the loan over the agreed term, plus interest and any fees.

How to find a VAT loan through NerdWallet UK

We can help you compare VAT loans, without affecting your credit score. Here’s how it works:

1. Answer a few quick questions about your business and what you’re looking for.
2. See your matched loan options instantly. We’ll check our panel of landers and find those you’re most likely to be eligible for. 
3. Compare and apply with key details pre-filled, making the process quicker and easier.

» COMPARE: Find a VAT loan today

What are the alternatives to a VAT loan?

If a VAT loan isn’t right for your business, you might want to consider an alternative source of business funding:

Business credit cards

A business credit card can be a good way to manage short-term cash flow and day-to-day spending. By paying off your balance in full you can avoid paying interest while building your business credit history.

» COMPARE: Business credit cards

Invoice finance

This allows you to release funds from unpaid invoices. It can be used to stabilise your cash flow or provide capital to pay your VAT bill as well as any other expenses. You may be able to access up to 90% of the value of your unpaid invoices up front, depending on the provider.

» COMPARE: Invoice finance

Unsecured business loans

A standard unsecured business loan can be used to cover your VAT bill as well as other expenses, with the advantage of potentially longer payment terms and a lower interest rate than a dedicated VAT loan. However, the provider won’t manage your payment directly to HMRC, and you will need a good credit history to qualify – and may need to provide a personal guarantee. 

» COMPARE: Unsecured business loans

Secured business loans

A secured business loan lets you borrow money for your business using an asset, such as business property, equipment, or vehicles, as collateral. While this can often mean lower interest rates, it does put your asset at risk if you fail to meet your repayments.
» COMPARE: Secured business loans