Start with the purpose of the borrowing
Before comparing business loans, set out the amount required, what it will pay for and when the business needs it. A planned equipment purchase, seasonal cash-flow gap and unpaid invoices are different problems, so they may call for different types of finance.
Estimate the full cost of the project and how it will be paid back. A forecast should include existing repayments, quieter trading periods and the possibility that the investment takes longer than expected to generate income.
- Match the repayment period to the useful life of what you are funding.
- Borrow against a specific need rather than an optimistic maximum.
- Keep a record of the assumptions behind your cash-flow forecast.
Business loan options are not all the same
A fixed-term loan provides an agreed sum that is repaid over a set schedule. A revolving facility can be drawn, repaid and drawn again up to a limit. An overdraft is attached to a business current account and can be repayable on demand.
Asset finance is linked to equipment or another asset, while invoice finance uses eligible unpaid invoices to release funds. These products have different costs, conditions and risks; compare how each works rather than relying on the word “loan”.
What a lender may assess
A lender decides whether to make an offer. Its assessment can include affordability, trading history, business and personal credit information, existing commitments, the purpose of the borrowing and any proposed security. Requirements vary between providers and products.
The Shareholder comparison journey currently accepts UK limited companies and LLPs. A lender may apply its own eligibility rules, ask for further information or decline an application.
Compare the full cost, not just the headline rate
Look at the amount received, repayment frequency, term and total amount repayable. Check arrangement fees, late-payment charges, early-repayment terms and whether the rate can change. If security or a personal guarantee is involved, understand what could happen if the business cannot repay.
Compare offers on the same borrowing amount and a similar term. A lower payment can result from borrowing for longer, which may increase the total cost. Ask the lender to explain any fee or repayment feature you cannot reconcile.
Prepare before applying
Have a clear explanation of the funding need and how repayments will be made. Lenders may ask for company details, bank statements, accounts, management figures, details of existing borrowing and forecasts. Keep the information consistent and up to date.
Find out whether an initial eligibility check uses a soft search or whether a full application involves a credit search. The process differs by lender, and an eligibility indication is not a lending decision.
A few things worth knowing
Common questions
What is the difference between a business loan and business finance?
Business finance is a broad term for ways a business can raise or access money. A business loan is one form: the business borrows an agreed amount and repays it under the loan terms. Facilities such as invoice finance and overdrafts work differently.
Can a limited company or LLP apply for a business loan?
Many lenders consider applications from limited companies and LLPs, but each sets its own eligibility criteria. Shareholder’s current comparison journey is for UK limited companies and LLPs; starting the journey does not guarantee an offer.
What should I compare between business loans?
Compare the total amount repayable, rate, term, repayment schedule, compulsory fees, early-repayment conditions and any security or personal guarantee. Check whether rates are fixed or variable and ask how the payments could change.