What Types of Business Loans Are Available in the UK?
George Wilks
Commercial Lead · Mar 3, 2024 · 7 min read
The UK business lending market offers a wide range of products, each designed for a specific business need. Understanding the differences between them before you apply ensures you choose the right structure rather than defaulting to a generic term loan that may not be the most efficient solution.
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Term loans, revolving credit, and overdrafts
A term loan advances a fixed sum repaid over a defined period in equal monthly instalments. It suits one-off investments where you know exactly how much you need and want cost certainty. A revolving credit facility (RCF) gives you access to an agreed limit that you draw, repay, and redraw as needed, paying interest only on what you use. RCFs suit businesses with variable cash flow. A business overdraft works similarly to an RCF but is typically provided by your main bank and reviewed annually.
The key difference between a term loan and an RCF: with a term loan you pay interest on the full outstanding balance from day one. With an RCF you pay only on what you draw. For a business that uses the facility intermittently, an RCF is almost always cheaper on total interest paid.
Asset finance, invoice finance, and specialist products
Asset finance spreads the cost of equipment or vehicles over the asset's productive life, with the loan secured against the asset. It typically produces better rates than unsecured borrowing for equipment purchases. Invoice finance releases up to 90% of an invoice's value within 24 hours of raising it, converting your debtor book into working capital.
Merchant cash advances are repaid as a percentage of daily card sales, making them accessible for hospitality and retail businesses but typically expensive compared to conventional loans. Trade finance supports the import and export cycle. Bridging loans provide short-term secured funding against property while awaiting a sale, refinance, or development completion.
"The most expensive mistake in business lending is taking a term loan for a need that invoice finance would solve more cheaply. Product selection matters more than lender selection."
- George Wilks, Commercial Lead
Frequently Asked Questions
What is the most common type of business loan in the UK?
The unsecured term loan is the most common. It offers a fixed sum, fixed term, and fixed monthly payments with no collateral requirement. However, for equipment purchases, asset finance is usually more efficient, and for invoice-intensive businesses, invoice finance is often the better solution.
The bottom line
Spark Finance works across all product categories and matches you to the right solution for your specific need. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
George Wilks
Commercial Lead
George leads commercial relationships at Spark Finance, specialising in property-backed finance including bridging loans, development finance, and commercial mortgages. He works with investors, developers, and owner-occupiers to structure short and long-term property finance.
