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A business loan is a form of finance that can be used to help support and expand your organisation.
As with personal loans, you borrow a sum of money, and pay it back, with interest.
One of the most important differences between personal loans and business loans is that with a personal loan, you will be personally liable for repaying the amount you have borrowed.
With a business loan, as long as the appropriate company structure is in place, that responsibility falls to the business instead. This will not be the case, however, if you are a sole trader, or you have secured your business loan with a personal guarantee.
You can also typically borrow more through a business loan, while the interest payments on your business loan may be tax deductible unlike payments on a personal loan.
Secured business loans require that you put down an asset such as property as security. Secured loans often come with lower interest rates than unsecured loans as they represent less risk for the lender. They may also give you access to a larger loan amount over a longer term. However, secured loans come with the added risk that you could lose your assets if you miss the payments.
Unsecured business loans are a type of finance that does not require security. These types of loans tend to have higher interest rates because there is a greater risk of the lender losing money if you can't pay off what you owe. Unsecured business loans also require a good financial history and credit rating as evidence that the business will be able to repay the loan.
There may be government-backed business loans you can access. Examples include the Recovery Loan Scheme, introduced to help with the financial stresses caused by the Covid-19 pandemic, which has now been extended. What schemes are available can vary depending on government policy and changing economic circumstances across the country. So it can be useful to regularly check the Department for Business, Energy & Industrial Strategy's search tool for guidance on the business loan schemes available in your region.
The Start Up Loan Scheme is a government-backed fund that currently offers personal loans of up to £25,000 to UK businesses owners that have been fully trading for less than 36 months or those looking to start a business. You can apply for free, and there are no early repayment charges. If your application is successful, you'll also get up to 12 months of free mentoring. Government Start Up Loans have a fixed annual interest rate of 6% and must be repaid over a period of one to five years.
Small business loans are for start ups and small businesses to access funding. They can be used for a variety of purposes from hiring new staff to managing cash flow. As with all loans, small business loans are repaid over an agreed time period with interest. Large business loans tend to be cheaper than small business loans because there is less perceived risk with lending to a bigger company.
Asset finance is a type of loan used by a business to buy expensive assets such as machinery, company cars or IT equipment, without overstretching its financial limits. The business pays a regular amount to use the asset over an agreed period, rather than spending a large lump sum in one go to buy it outright.
An asset finance loan might be considered an alternative to other business funding options, such as overdrafts and bank loans.
For all the potential benefits of asset finance, it isn’t right for every business.
You’ll need to make sure you can make the regular repayments on time over the agreed term. You should also be clear on the terms of the contract, including the interest rate charged and the total amount you’ll be paying. Consider carefully if it suits your company’s financial situation before you sign an agreement.
It’s worth knowing that:
You can get asset finance through a finance provider, an equipment provider or manufacturer, or a broker.
First, research the asset you want, including preferred brands and models. This will help you determine the amount you need to borrow.
When you are ready to apply, check your eligibility with that provider. Your business may need to be a limited company or limited liability partnership, and UK-based. Though some providers also welcome sole traders. Your business may also need to have a minimum trading time or annual turnover and a good credit history.
Like any business loan, you will need to provide documents to prove your eligibility and show that your business can make agreed repayments on time. This may include financial forecasts, bank statements and tax returns, so it’s important to get these in order before you apply.
Timescales depend on the provider, the amount you are asking for and your business structure, among other things. But some providers may approve an application and put the agreement in place within just 24 hours. If you get follow-up requests from your lender asking for additional documentation, it may affect timings.
Use our table to compare asset finance deals from a range of providers. You’ll see:
Then just click on the deal for more information.
How flexible is asset financing?
Asset financing is flexible in a few ways. An asset can be anything from catering equipment to a heavy goods vehicle, provided it’s critical to your operations and removable. You can also choose a provider that specialises in that type of asset, or that knows your type of business.
With equipment leasing, once the contract term ends, you may be able to choose if you want to:
Contract terms and amounts loaned can also depend on the provider. This means it’s possible to choose a deal that is specific to what your business needs for as long as it needs it, if the monthly payments are affordable.
A lender may, for example, offer a repayment structure that considers seasonal fluctuations in your cash flow. Or they may let you create your own repayment schedule.
Can a limited company get asset finance?
Yes. In fact, some financing companies will only work with limited companies or public limited companies. But limited companies, partnerships, public limited companies and sole traders of all sizes, across all sectors, from waste disposal to manufacturing, can access asset finance.
Each provider has its own eligibility criteria, and some specialise in particular types of company, and may exclude others.
What’s the difference between asset financing and asset-based lending?
Asset financing lets a business fund an asset it needs. With asset-based lending, also called asset refinancing, the business uses an asset it already owns as security against a loan, to release the cash for other parts of the business.
The asset might include stock, equipment, machinery and property that appear on your balance sheet, or even intellectual property and accounts receivable.
You can continue to use the asset, where applicable, and ownership will revert back to your business at the end of the agreement. If you don’t make the repayments or fail to meet the lender’s terms and conditions, the lender can remove the asset.
What’s the minimum amount you can get through asset finance?
Asset finance can start from as little as £5,000. The amount you can borrow will depend on the type of asset financing you choose, the asset you need and the individual provider.
What’s the maximum amount you can get through asset finance?
The maximum amount of asset finance offered by lenders can be as much as £10 million. Whether your business could access that amount depends on its finances and the affordability of repayments, among other things.
Can I finance second-hand assets?
Yes, you can finance second-hand and new assets. The lender will want to make sure the used equipment is in good condition and is worth the value given to it. It will also need to establish the asset’s remaining usable life.
What is asset refinancing?
Asset refinancing is a loan that is secured against assets a business already owns. The capital this frees up can be used elsewhere in the business, with the amount based on the equity the business owns in the asset. Even if your business doesn't own the asset outright, it may be possible to use refinancing alongside other financing.
The lender will have criteria an asset has to meet before it can be used as security for a loan.
As with asset finance, the business makes monthly payments over the agreed term until the sum and interest charged are repaid. If you can’t keep up with repayments, or if your business fails to meet the lender’s terms and conditions, the lender can remove the asset to recoup its losses.
» MORE: How does invoice financing work?
What happens if my assets are stolen or damaged?
You should let your lender know if the asset is stolen or damaged. Responsibility for insuring leased equipment usually falls to the lender, so the lender should take care of the claim. Check the terms and conditions of the agreement to be sure before you lease the equipment.
If you are responsible for insurance – perhaps because it’s a hire purchase agreement – you should tell your lender about loss or damage as soon as possible and make a claim on your business insurance policy. Your lender may ask that the insurance payout is paid straight to them to settle the outstanding debt before paying you the remainder. The process should be explained when you first get in touch.
» COMPARE: Business insurance deals
Will I have to pass a credit check?
The provider may carry out credit checks on your business when you apply for finance, which could affect your business credit rating. If your business credit rating is poor, it might be a good idea to try to improve it before you apply for business loans or credit facilities.
If you are comparing asset finance through a broker, if they search for products and carry out eligibility checks, it won’t usually affect your credit score.
Can a business asset loan affect my personal finances?
If your business doesn’t meet pre-agreed repayments for asset finance, it may impact on your personal credit score if you personally guaranteed the business account in any way.
If you are a sole trader, you and your business are the same in the eyes of the lender, and your name will appear on debts your business owes. So late payments and defaults could potentially damage your personal credit score. This would also apply to all owners of a limited liability partnership.
If your business is run as a limited company, your business’s name would appear on the debt instead of yours. This should leave your personal credit report unaffected if your company can’t meet the repayments.
If you are struggling to meet the repayments, talk to your provider as soon as possible.
