Business loans
Business loans are for business purposes only, such as stock, staff, equipment, marketing, new premises or refinancing business debt. You can't use one to pay off personal debts.
Lenders usually want an established trading history, financial statements and sometimes a business plan. Rates vary widely, from around the home loan rate for a loan secured against property to 20% or more for short-term unsecured loans.
- Term loans: a lump sum repaid over a set term, secured or unsecured.
- Lines of credit and overdrafts: a limit you draw on as needed, paying interest only on what you use.
- Equipment finance and chattel mortgages: for vehicles, machinery and equipment.
- Commercial property loans: to buy offices, shops or warehouses.
- Invoice finance: an advance against invoices your customers haven't paid yet.
Personal loans
A personal loan is assessed on your own income and credit history, so it can suit a business that's too new for a business loan. Many lenders approve quickly and need less paperwork.
Check the lender allows business use first, as some don't. You're personally liable for the loan, and it appears on your personal credit report.
Who's liable
If you're a sole trader, you're personally liable for a business loan too. A company is liable for its own loans, but most lenders ask directors for a personal guarantee, which puts you back on the hook if the company can't pay.
Which is better?
For a new business without a trading history, a personal loan is often the realistic option. Once the business is established, a business loan usually lets you borrow more, for longer, and keeps business debt separate from your own.