SME Business Loans

Whether you are a vet, architect or accountant, small businesses and entrepreneurs across the UK need access to funding.

Funding is a key catalyst of growth, and can support investments into expanding operations and purchasing equipment, as well as managing cash flow. For this reason, an SME business loan can make all the difference for mid-size companies.

In this article, we will cover the essentials – what SME business loans are, how they work in the UK, and how you can apply for one.

What is an SME business loan?

An SME business loan is a financial product intended specifically for small and medium-sized enterprises (SMEs).

According to government figures, SMEs make up over 99% of all businesses in the UK.

Due to this overwhelming share of SMEs in the UK, their vital role in the economy is clear, and SME loans provide these businesses with access to funding that can be used for a variety of purposes; from buying stock and hiring staff to investing in new technology or managing day-to-day expenses.

SME loans are offered by a range of providers, including high street banks, online lenders, alternative finance platforms, and government-backed schemes.

The amount involved in an SME loan can vary significantly. It will depend on the financial products offered by the lender and the specific needs of the business.

How do SME business loans work?

In the UK, SME business loans work in a similar way to other types of business finance.

A lender agrees to provide a business with a sum of money. This money is then repaid over time with interest.

The terms and conditions – such as the loan amount, repayment period, interest rate, and security required – varies according to loan structure specified by the lender.

Types of SME business loans in the UK

Let’s run through some of the different types of SME business loans that are commonly available in the UK.

Term loans – are fixed repayment plans over a set period, typically with monthly payments.

Unsecured business loans – require no collateral and are mainly based on the credit rating of the business.

Secured loans – require assets such as property or equipment to be used as collateral.

Merchant cash advances – involve borrowing against future card card sales, and are popular with retail and hospitality businesses.

Invoice finance – a way to unlock funds tied up in unpaid invoices.

Government-backed loans – are offered through government schemes such as the British Business Bank.

Interest rates applied to SME business loans can vary based on several factors, including; the loan type, the business’s credit score, and the term length. Usually unsecured loans have higher interest rates due to the increased risk to the lender. Additional costs may include arrangement fees, early repayment fees, and late payment charges.

Repayment periods usually range from a few months to several years. It’s important for SMEs to understand the full cost of borrowing and to choose repayment terms that match their cash flow cycle.

How to apply for an SME business loan

Applying for an SME business loan in the UK starts with a business understanding their own needs – why they need the loan and how much funding they require.

They should have a clear plan for how to use the funding, whether that’s buying new equipment, expand their premises, or covering seasonal gaps in cash flow.

A company should also be able to set out their financial details for the lender, offering accurate figures for; annual turnover, profit and loss accounts, bank statements, existing debt obligations, and business credit rating.

Accounts should be up to date and accurate, and sole traders or new businesses should be aware that lenders may look at their personal credit history.

Required documents will vary according to each lender, but may include; company accounts, company bank statements, VAT records, proof of identity and address, and a business plan (especially for new or growing businesses).

After an SME has compared lenders and the various loan products that they offered – including bank loans and online funding options – they should compare interest rates, repayment terms, and customer reviews.

Once the full application process has been completed for a loan, decisions are made within hours or a few days, before, if approved, funds are transferred within 24–72 hours.

Whether SMEs are looking to scale up or simply maintain steady operations, an SME business loan can be a financial lifeline. With a range of products available and an increasingly competitive lending market in the UK, small businesses now have more choice than ever before.

Would you like to see if your company is eligible for an SME business loan? Use our eligibility checker below