How Much Can I Borrow With a Business Loan?

If you're running a small business and considering borrowing money, one of the first things you're likely wondering is how much you can actually borrow with a business loan. The answer isn’t always straightforward. But don’t worry - we’ll break it all down for you.

This guide will walk you through the factors that affect how much you can borrow, the types of small business finance available, and how to land on the right option.

What is a Small Business Loan?

Let’s start with the basics. A business loan is funding that a lender gives you to help grow or stabilise your company. You agree to repay it over time, typically with interest.

Business loans can help with everything from buying new stock or equipment to covering slower months.

How Much Can I Borrow With a Small Business Loan?

The amount you can borrow will depend on a few key pieces of criteria:

Your business income - Lenders want proof that you’re bringing in enough money to repay the loan.

Your credit score - This helps lenders assess your reliability.

How long you’ve been trading - Some lenders only lend to firms that have been operating for a year or more.

What the loan is for - Some (but not all) lenders will offer more for long-term investments.

In general, small business loans in the UK range from £1,000 to over £500,000. Most small businesses tend to borrow somewhere in the lower range of that, especially if they're a startup or still growing. When exploring loan options, it’s important to understand the distinction between secured and unsecured loans.

Secured business loans require the borrower to provide collateral, such as property, equipment or other business assets, as security for the loan. This reduces the lender's risk and often results in lower interest rates or more flexible repayment terms. However, if the borrower defaults, the lender has the right to seize the collateral to recover the debt.

Unsecured business loans, on the other hand, don’t require any collateral. These are typically based on the borrower's creditworthiness and the business's financial health. Because there is more risk for the lender, unsecured loans often come with higher interest rates or shorter repayment terms. However, they can be a quicker and more accessible option for small firms that lack significant assets.

Are Business Loans Short-Term?

They can be, but they’re not always. You’ll usually come across three main types of repayment terms:

Short-term loans (3-18 months): Ideal for covering short-term financial gaps or seizing quick business opportunities.

Medium-term loans (1-3 years): Often used for new equipment or marketing campaigns.

Long-term loans (3+ years): These are more suitable for significant investments, such as new premises.

Some lenders offer flexible terms that let you repay early without fees, which is handy if you want some breathing room but don’t plan to use the full term.

What is a Business Line of Credit?

A business line of credit is similar to having a company credit card. Instead of borrowing a lump sum, you get access to a pool of funds, £50,000 for example, that you can dip into whenever you need. You only pay interest on what you use, not the full amount.

It’s handy if your income fluctuates or if you want a safety net without committing to a large loan. Think of it as flexible borrowing on your terms.

What Do Lenders Look at Before Offering a Business Loan?

Here’s what most lenders will want to know before handing over any cash:

• Turnover

• Profit

• Trading history

• Credit history

• Business plan

How to Increase Your Borrowing Potential

Here are a few tips to boost how much you might be able to borrow:

• Keep your accounts up to date - Lenders love clear and concise numbers.

• Improve your credit score - Pay bills on time and avoid taking on excessive debt.

• Consider offering security - Some loans require collateral, like property or equipment, which can increase the amount you can borrow.

Is a Small Business Loan Right for You?

A small business loan can be a powerful tool, but only if it’s the right type for your circumstances. If you just need a bit of working capital to tide you over, a short-term loan or business line of credit might be ideal. If you’re investing in a long-term project, look for a lender with competitive interest rates.

Don’t be afraid to compare business loans or speak to a financial advisor. Getting your business borrowing right can make a big difference.