Small Business Loans

No matter if you’re a new startup, an established business, a sole trader, or a company with up to 25 employees, small business loans provide a flexible, cost-effective way to finance business growth. Stop relying on inconsistent cash flow and take your business to the next level with a loan designed to meet your specific needs.

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What is a small business loan?

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First, let’s define what qualifies as a small business. There are several definitions, but most UK lenders define a small business as one with up to 50 employees and annual revenues under £2 million. In practice, a small business can be anything from a sole trader to a company with 250 employees.

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Small business loans can be used for a range of purposes, such as launching a startup, expanding operations, purchasing assets, refinancing debt, or even acquiring another business. Loan amounts can range from £1,000 to £500,000, with repayment terms extending up to 25 years if the loan is secured by assets like property or land. Unlike equity financing, a business loan does not require owners to give up any ownership in the company.

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How do small business loans work?

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Small business loans generally work like other types of loans: a lender offers a lump sum, which is repaid over time. The loan can be secured or unsecured and will typically include interest and other costs.

 

The main types of small business loans include:

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Secured business loans
These loans require the borrower to offer collateral, such as property, equipment, or other assets. Secured loans tend to offer larger sums and lower interest rates since the lender's risk is reduced.

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Unsecured business loans
Unsecured loans do not require collateral, meaning the lender takes on more risk. As a result, they are typically more expensive and offer smaller loan amounts. Borrowers will need strong credit to qualify for an unsecured loan.

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Merchant cash advance
This loan type provides funding for businesses that take payments through a credit card terminal. The lender offers a lump sum, which is repaid through a percentage of the business's daily card receipts. Merchant cash advances are flexible and quick to arrange, making them suitable for businesses with poor credit.

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Invoice finance
While not technically a loan, invoice finance allows businesses to borrow against the value of unpaid invoices. The lender advances a percentage of the invoice's value immediately, improving cash flow. This option works well for businesses that are growing but have issues with delayed payments.

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Who can benefit from a small business loan?

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Small business loans are available to a wide range of businesses, from sole traders and contractors to companies with up to 50 employees across various sectors. Whether you’re a retailer, healthcare provider, tradesperson, or transport operator, there’s likely a loan suited to your business. If you're planning to start a business or need capital to grow, a loan can help you achieve your goals.

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How much can I borrow?

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Monetae’s lending partners offer small business loans ranging from £1,000 to £500,000. However, the amount you can borrow depends on several factors, including:

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• Secured or unsecured: Secured loans usually allow for larger sums.

• Term length: Long-term loans typically offer more money than short-term loans.

• Credit score: Both personal and business credit scores impact how much you can borrow.

• Type of business: Certain industries, like retail and restaurants, are considered higher risk, which can affect loan amounts.

• Business financials: A business with strong profitability and cash reserves can borrow more than one that struggles with cash flow.

• Business age: Established businesses with multiple years of accounts typically qualify for larger loans.

• Assets: Businesses with substantial assets, such as property, may be able to borrow more.

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What are the interest rates?

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Interest rates on small business loans vary widely. Typically, secured loans have lower interest rates than unsecured ones. Rates may be fixed, staying the same throughout the life of the loan, or variable, fluctuating with the Bank of England’s base rate.

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Loans may also be priced at a margin over the base rate, so for example, if a loan is offered at 2% over the base rate of 1%, the interest rate would be 3%. Merchant cash advances usually use a daily interest rate, which can make them more expensive than traditional loans.

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Each loan is unique, with interest rates reflecting the specific circumstances of the business, such as its creditworthiness and the loan’s structure.

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What fees should I expect?

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Small business loans tend to have more fees than personal loans because of the need for additional due diligence. Some common fees include:

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• Origination fee: A fee charged for processing the loan, typically a percentage of the loan amount.

• Appraisal and underwriting fees: If the loan is secured by assets, the lender may charge fees for appraising those assets and conducting due diligence.

• Pre-payment penalty: Some loans charge a fee for repaying the loan early.

• Referral fee: If you were referred to the lender by a third party, the lender might recoup this fee from you at closing.

• Factor rate: This applies to merchant cash advances and some short-term loans. Multiply the factor rate by the loan amount to calculate the total repayment. For example, a factor rate of 1.2 on a £10,000 loan means you will repay £12,000.

• Default fees: If you miss payments or default on the loan, you could face late fees and higher interest rates.

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What can I use the loan for?

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Small business loans can fund virtually any business activity, including purchasing equipment, real estate, or other assets, covering operational costs, expanding your business, or refinancing existing debt.

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Government-backed small business loans

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The UK government offers several types of financial support for small businesses, including:

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• Startup loans: Up to £25,000 for new businesses, with an affordable 6% interest rate and a five-year repayment term. These loans are unsecured and available to a wide range of businesses.

• Recovery Loan Scheme (RLS): Introduced in 2021, the RLS provides loans from £25,000 to £10 million, with interest rates capped at 14.99% and 80% of the loan backed by the government.

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Monetae partners with official UK referral agencies to help businesses access startup loans and government-backed funding.

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Can I use a small business loan to buy a business?

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Yes, you can use a loan to buy an existing business, though lenders will expect you to conduct thorough research into the business’s financial health, market position, and potential risks. Business reputation, customer reviews, and the long-term sustainability of the business are key factors lenders will consider.

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Can I qualify with bad or no credit?

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Yes, it’s possible to secure a small business loan with poor credit through Monetae’s network of lenders. Options like secured loans or merchant cash advances may be available even if you’ve struggled with credit elsewhere.

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How do I apply?

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Monetae offers an easy application process for small business loans, whether you're a startup, sole trader, or established company with up to 50 employees. Borrow as little as £1,000 or as much as £500,000 by completing a straightforward application. Register with Monetae today to find out what financing options are available to grow your business.