UK business loans in 2026 fall into six main categories: term loans from banks, government-backed Start Up Loans, asset finance, invoice finance, merchant cash advance, and revolving credit facilities. Indicative rates are 7–12% on secured term loans, 8–25% on unsecured loans, and a fixed 7.5% on the government Start Up Loan from 6 April 2026. Eligibility is based on trading history, turnover, and personal credit.

This guide covers the main loan types, current 2026 rate bands, what lenders look for, how to apply, and the alternatives if you cannot get traditional debt finance.

Types of business loans

Term loan from a bank or alternative lender

A traditional term loan provides a lump sum repaid over a fixed period (commonly one to seven years for SMEs) with interest charged on the outstanding balance. Term loans can be secured (against property, equipment, or a debenture) or unsecured. High-street banks dominate the secured market; alternative lenders (Funding Circle, iwoca, Capital on Tap, NatWest Mentor) are active in unsecured and shorter-term lending.

Government-backed Start Up Loan

The Start Up Loans scheme is a personal loan to fund a new or young business, backed by the British Business Bank and delivered through the Start Up Loans Company. Loans run from £500 to £25,000 per individual, with a maximum of £100,000 per business if multiple owners apply. The fixed interest rate from 6 April 2026 is 7.5%. Repayment is over one to five years, and there is no setup or application fee. Successful applicants also receive 12 months of mentoring.

Asset finance

Asset finance covers hire purchase and finance lease products that fund equipment, vehicles, and machinery. The asset itself secures the lending, so rates can be lower than unsecured term loans, and approval is often easier. The trade-off is that the asset stays with the lender (or is transferred at the end of a hire purchase agreement) and you cannot sell it freely.

Invoice finance

Invoice finance advances money against unpaid customer invoices. Two main forms: invoice discounting (you keep collecting from customers; cheaper) and factoring (the lender collects; pricier but takes credit-control work off you). For more detail, see our dedicated guide to invoice finance.

Merchant cash advance

A merchant cash advance is funding repaid as a fixed percentage of card sales. It suits hospitality, retail, and other card-heavy businesses. Pricing is expressed as a factor rate (typically 1.1× to 1.5× the advance) rather than an APR. Effective annual costs are usually high but repayment flexes with revenue.

Revolving credit facility

A revolving credit facility is a pre-approved limit you can draw down and repay flexibly, like a business overdraft but typically with a fixed expiry date and a non-utilisation fee. Lenders include iwoca and the major banks.

Typical 2026 interest rates

Bank of England base-rate movement and lender risk appetite drive the cost of business borrowing. Indicative bands for 2026:

  • Secured term loans: 7–12% APR, depending on loan-to-value and security quality
  • Unsecured term loans: 8–25% APR, depending on credit profile and turnover
  • Asset finance: 6–14% APR equivalent, with lower rates for high-quality used equipment
  • Invoice finance: BoE base rate plus 1.75–4.5% on drawn balances, plus a service charge of 0.1–3% of turnover
  • Merchant cash advance: factor rates of 1.1–1.5×, equivalent to 30–80% APR
  • Start Up Loan: fixed 7.5%

Smaller, newer, or higher-risk borrowers price at the upper end of each band. Rate quotes change weekly, so treat any specific number as indicative and seek a current quote before committing.

Eligibility requirements

Lenders assess the same handful of factors:

  • Trading history. Most term lenders want at least 12 months of accounts; many want two years. Start Up Loans accept businesses trading less than 60 months (and pre-trade applicants).
  • Turnover. Minimums vary widely; some unsecured lenders set £50,000–£100,000 floors, while Start Up Loans have no turnover floor.
  • Personal credit. Director and personal credit history matters even on company loans, especially below £100,000.
  • Personal guarantees. Most unsecured lending to SMEs requires a personal guarantee from one or more directors.
  • Security. Secured loans need property, equipment, or a debenture floating charge.

How to apply

The process for a typical bank or alternative-lender term loan:

  1. Decide loan size, term, and purpose
  2. Gather documents: 12–24 months of accounts, six months of bank statements, management accounts, business plan, cash-flow forecast, personal ID and address
  3. Compare lenders directly or through a broker; check whether the lender soft-searches or hard-searches at quote stage
  4. Apply with one or two lenders; multiple hard credit searches in a short window can damage your score
  5. Underwriting (1–4 weeks)
  6. Decision, drawdown, and standing-order setup

Government-backed Start Up Loans use a similar process via startuploans.co.uk or a delivery partner, with a 2–6 week typical timeline.

If you specifically want the Start Up Loans route rather than a commercial alternative, see Start Up Loans eligibility, rates, and how to apply.

Government-backed schemes

Beyond Start Up Loans, the government has run a series of schemes through the British Business Bank:

  • Recovery Loan Scheme ran 2021 to 2024, replaced by:
  • Growth Guarantee Scheme (introduced 2024) — partial guarantee on lending up to £2 million via accredited lenders, focused on smaller businesses unable to access standard commercial terms.

These schemes do not lend directly. They underwrite a portion of accredited lenders’ risk so they can lend to borrowers who would otherwise be turned down or priced out. Eligibility is set by the lender within scheme rules.

Alternatives if you cannot get a loan

If debt finance is not available or sensible, consider:

  • Equity finance. SEIS (£500,000 lifetime company limit) and EIS (£10 million annual from April 2026) tax reliefs make equity attractive to UK angel investors.
  • Grants. Innovate UK Smart Grants, Help to Grow Management, and regional Growth Hub grants offer non-repayable funding for eligible businesses.
  • Invoice finance. Easier to access than unsecured loans because the lender takes invoice security.
  • Trade credit. Negotiating supplier payment terms can free up cash without borrowing.
  • Family and friends. Often lowest cost, but document properly to protect relationships.

Key takeaways

  • Six main categories: term loan, Start Up Loan, asset finance, invoice finance, merchant cash advance, revolving credit
  • Indicative 2026 rates: secured 7–12%, unsecured 8–25%, Start Up Loan 7.5% fixed
  • Most unsecured SME lending requires a personal guarantee
  • Start Up Loans run £500–£25,000 per person, up to £100,000 per business
  • Alternatives include equity (SEIS/EIS), grants, and trade credit
  • Rates change frequently — get a current quote before committing

Frequently asked questions

What interest rate will I pay on a business loan in 2026? Indicative bands are 7–12% APR for secured loans, 8–25% APR for unsecured, and a fixed 7.5% on the government Start Up Loan from 6 April 2026. Your actual rate depends on credit, turnover, security, and lender.

Can I get a business loan without a personal guarantee? Yes, but typically only for larger amounts (£250,000+) with strong company financials, or for fully-secured asset finance. Most SME unsecured lending below £100,000 requires a personal guarantee.

How long does a business loan application take? Alternative lenders can decide in 24–72 hours. High-street banks typically take two to four weeks. Government-backed Start Up Loans take two to six weeks.

Do I need accounts to get a business loan? Most term lenders want 12–24 months of filed accounts. Pre-trade and very early-stage businesses are usually limited to Start Up Loans, asset finance, or invoice finance against existing customer contracts.

What is the largest Start Up Loan I can get? £25,000 per individual applicant. Multiple owners in the same business can each apply, up to a £100,000 group cap.

(Rates are indicative and change frequently. Always get a current quote from the lender before proceeding.)

Useful resources

British Business Bank https://www.british-business-bank.co.uk/

Start Up Loans Company https://www.startuploans.co.uk/

Financial Conduct Authority — Regulated firms https://www.fca.org.uk/