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Starting and maintaining a business is not an easy job – whatever sector you are working in. It’s rare that businesses can be started solely through using personal funds – often financial help will be needed to get the business off the ground. The success of some businesses can often depend on access to affordable finance – and this means finding the business loan and appropriate business loan rates that are right for you.
Business Loans UK
Fortunately, there are many options available to those looking to borrow money to further their businesses. In fact, there has arguably never been a better time to borrow small business loans in the UK. Interest rates have been at a historical low since 2009 and, with inflation rising, the rates are not likely to start increasing again in the near future. Although the Bank of England base rate has been at a record low for almost nine years, banks were initially slow to pass this benefit onto customers – including businesses.
The start-up and small business sector was particularly hard hit by the initial tardiness of lenders; many of the high street banks have been reluctant to provide loans to companies without a proven history. However, times are now changing, and banks are starting to be more lenient in who they lend finance to. This is leading to more competitiveness in the loans market, hence better business loan rates for customers. And it’s not just better business loan rates – conditions of loans are becoming more favourable, and many businesses are finding that they are locking in low rates for several years.
How To Get A Business Loan
It’s very important to know how to get a business loan suited to your company, and now it’s easier than ever. Of course, lending institutions are still being cautious in who they loan to following the global financial crisis back in 2008. However, in a bid to help kick-start the economy, banks are generally being more flexible in their lending criteria. This is in part due to increased pressure from the UK government on the major banks, and understanding that this is a part of learning how to get a business loan for your company.
The government recently announced a new deal with several of the major UK high street banks to increase lending to small and medium sized businesses (SMEs). This is part of a wider commitment to boost the export business as we head towards Brexit. Banks including Santander, HSBC, Barclays, Lloyds Banking Group and the Royal Bank of Scotland are all part of the scheme, which has been initiated to try to avoid a further lag in exports following the UK’s vote to leave the EU last year. The deal will work by the government lessening the risk to banks of lending to small businesses. This will mean that banks can broaden their lending criteria, potentially lending to smaller and riskier companies.
On the flipside, consumer lending criteria are set to become tighter. However, while consumers may miss out on loans, this is also likely to mean that the high street banks will shift some of the funds traditionally reserved for personal loans over to business loans UK. Recently, the Bank of England’s Prudential Regulation Authority (PRA) highlighted various concerns about consumer lending, including loans for cars, house improvements and credit cards. It warned that households were taking on dangerous levels of debt and that banks should be extra vigilant in their lending criteria – due in part to rising inflation levels, poor wage increases and property market uncertainty. Whilst this is bad news for consumers, it could be good news for businesses; with more protection offered by the government, banks are likely to turn to the SME market for loan income.
Best Loan Companies
If your business has a good credit rating, you will most likely want to start searching for your loan at one of the more mainstream, high street banks. Rates vary between lenders, and rather than limit your options to one bank, make sure you compare the overall costs of the loan. Some banks are luring businesses in with low rates, but then the arrangement fees that are added to these loans can often make them more expensive in the long run. Our useful comparison tool works out the overall cost of borrowing from each of the high street lenders – not just the monthly cost of repayments, to help you find the best business loans to match your requirements.
In addition to arrangement fees and the borrowing rate, there are also various other terms that you will need to consider when working out who the best loan companies are. These include how long you want to take the loan out for, how much money you can borrow, when is the earliest you can repay it without incurring a hefty penalty, and whether you can take a break from your repayments at any time if you need to. You should also take the time to compare all of these features meticulously, as often the cheapest loan will not be the most beneficial to your business, and will not necessarily be provided by the best loan companies on the market.
New Options For Lending
If your business has been refused by one of the mainstream high street lenders, don’t fret. There is now a host of alternative options for borrowing money. For a start, the government itself now offers small business loans to businesses and, as of 2016, it has lent more than £100m to small and medium sized enterprise in the United Kingdom. Businesses that are interested in applying need to demonstrate that they are likely to make a profit if they are not already – and proof of this needs to be supplied in order to ensure a successful application.
A recent report carried out by the British Business Bank revealed that 100,000 small businesses had been rejected by mainstream lenders for loans totalling approximately £4bn. However, the high street banks are not the only places to search for the best loan for business requirements. Thanks to the proliferation of mobile technology, a burgeoning fintech start-up scene and an explosion of digital innovation from younger finance companies, there are now many more ways that businesses can borrow money, and finding the best small business loans UK has never been easier.
Crowd funding and peer to peer lending are also on the rise, and are now providing more popular ways than ever to acquire the best business loans. Crowd funding means essentially borrowing money from a pool of people that believe in your business idea; in return, you would typically give them a small stake of equity in your business. A recent report by Massolution found that by the end of 2016, the crowd funding industry provided more funds to businesses than the venture capital industry – overtaking it for the first time ever. Crowd funding is no longer for early adopters only; with more than $34 billion of funds allocated to businesses via crowd funding in 2015, it is now a viable option.
Peer to peer lending is also becoming popular when people are searching for a loan for business purposes, and there is a host of sites that now offer individuals the chance to invest in small companies for higher rates of return than they would typically make by keeping money in savings accounts or bonds. This typically works by the small business launching a pledge for money and detailing how much money is needed and for what timescale. The peer to peer lending company then gives that company a rating according to the level of risk involved for lenders. An interest rate at which the loan will be repaid is then applied. Individuals can then search through loan applications and choose to invest a sum. When the total sum for your business loan is reached, you effectively borrow money from however many people have opted into your application. You then repay the peer to peer lending company and they pass it to the beneficiaries. This can be a great alternative for small business loans UK; although rates are typically higher than the high street banks, individuals are prepared to take more of a risk with smaller sums that can collect higher returns.
Whatever loan for business solutions you are looking for, make sure you first compare the main lenders to find the best business loans for you.