How to Get a Small Business Loan in the UK in 2026
- Types of small business loans available in the UK
- What lenders look for when assessing your application
- Government-backed Start Up Loans
- Alternative lenders: faster but more expensive
- Invoice finance: unlock cash tied up in unpaid invoices
- How to prepare a strong loan application
- Grants: free money that does not need to be repaid
Small business loans in the UK range from £1,000 to £5 million+. The main types are bank loans, government-backed Start Up Loans (up to £25,000 at 6% fixed), invoice finance, and alternative lenders. Lenders look at trading history, cash flow, credit score, and your ability to repay. Most businesses can access some form of finance within 2–6 weeks of applying.
- Types of small business loans available in the UK
- What lenders look for when assessing your application
- Government-backed Start Up Loans
- Alternative lenders: faster but more expensive
- Invoice finance: unlock cash tied up in unpaid invoices
Types of small business loans available in the UK#
The main types of business finance are: term loans (a lump sum repaid over 1–7 years, typically at 6–15% interest); government-backed Start Up Loans (up to £25,000 per founder, fixed 6% rate, no security required, for businesses under 3 years old); revolving credit facilities (a flexible limit you draw down and repay as needed, useful for working capital); invoice finance (you advance up to 90% of unpaid invoices, releasing cash tied up in debtors); asset finance (spreading the cost of equipment or vehicles over 2–5 years); and alternative lending platforms like Funding Circle, iwoca, and Liberis (faster decisions, higher rates).
What lenders look for when assessing your application#
Every lender assesses the same core questions: Can you repay? They look at your cash flow, profitability, and existing debt. Will you repay? They look at your credit history (personal and business). What if you do not repay? They look at security (assets they can claim). For bank loans, you typically need 2 years of trading accounts showing profitability, a good personal credit score, and sometimes a personal guarantee or asset as security. Alternative lenders often approve based on 6 months of bank statements and 12 months of trading history, without needing audited accounts.
Government-backed Start Up Loans#
The Start Up Loans scheme, backed by the British Business Bank, offers loans of £500–£25,000 per director at a fixed 6% interest rate with no arrangement fee and no security required. Repayment terms are 1–5 years. You also get 12 months of free mentoring from an assigned mentor. Eligibility: business must be under 3 years old, located in the UK, and have a viable business plan. Each director of a business can apply — so a two-director company can access up to £50,000 combined. Apply through an approved delivery partner at startuploans.co.uk. Approval typically takes 4–8 weeks.
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Alternative lenders: faster but more expensive#
If you do not qualify for a bank loan or need funds quickly, alternative lenders fill the gap. Funding Circle offers business loans of £10,000–£500,000 with 6-month to 6-year terms — decisions in 24 hours, rates from approximately 7.9% APR. iwoca offers revolving credit from £1,000–£500,000 with decisions in hours. Liberis advances against future card or revenue receipts — you repay as a percentage of daily sales, making it flexible for seasonal businesses. These lenders charge higher rates than banks (10–40% APR is common) but approval is faster and requirements are lower.
Invoice finance: unlock cash tied up in unpaid invoices#
If your business has a lot of money tied up in unpaid invoices from other businesses, invoice finance can unlock that cash within 24 hours. Invoice factoring companies (like Bibby Financial Services, Aldermore) advance 70–90% of the invoice value immediately. The remaining balance minus fees arrives when the customer pays. Typical cost: 1–3% of invoice value per month. This is not a loan — there is no formal repayment schedule, and the "repayment" happens when your customers pay. Particularly useful for businesses with B2B clients on 30–60–90 day payment terms that are creating cash flow gaps.
How to prepare a strong loan application#
Preparation significantly improves approval chances and the rate you are offered. Gather these before applying: last 2 years of accounts (or 6–12 months of bank statements for new businesses), a cash flow forecast showing you can service the debt, a clear statement of how you will use the money and how it will generate a return, your business credit file (check it at Experian Business or Creditsafe for errors before applying), and your personal credit score if a personal guarantee will be required. A short business plan for newer businesses — even two pages — demonstrates seriousness. Match your application to the right lender: do not apply to a high-street bank for a 6-month-old business.
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Grants: free money that does not need to be repaid#
Grants are better than loans because they do not need to be repaid. They are also more competitive. Major sources of UK business grants: Innovate UK (research and development grants for innovative businesses, up to £500,000); Growth Hub grants (regional grants through Local Enterprise Partnerships — amounts vary by region); Seed Enterprise Investment Scheme (SEIS) — not a grant, but allows investors to back your business with significant tax relief which makes raising investment easier; and sector-specific grants for farming, arts, tech, and manufacturing. Search for grants at businessfinancesupport.org (the British Business Bank's grants database).
People also ask
What is the easiest small business loan to get in the UK?
The easiest business loans to get are alternative lenders like iwoca and Funding Circle, which can approve applications based on 6 months of bank statements without audited accounts. Government-backed Start Up Loans are also accessible for newer businesses — the 6% fixed rate and no security requirement makes them excellent value.
Can I get a business loan with bad credit?
Yes, but your options are limited and the rates will be higher. Alternative lenders focus more on cash flow than credit score. You might also consider a secured loan (where you offer an asset as security), invoice finance, or a guarantor loan where a third party guarantees repayment. Improve your credit score before applying if time permits.
Do I need a business plan to get a loan?
For bank loans and government-backed schemes (including Start Up Loans), yes — a business plan is required. For alternative lenders, no — they typically assess based on bank statements and cash flow rather than a formal business plan. Even if not required, a simple plan helps you articulate how you will use and repay the money.
How much can a small business borrow?
It depends on your trading history and financials. Start Up Loans are capped at £25,000 per founder. Alternative lenders typically lend up to £500,000. Bank term loans can go much higher for established businesses with strong accounts. As a rule of thumb, lenders will not lend more than 3–4 times your average monthly revenue without substantial security.
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