Are you looking for cheap business loans?
Then you’re in the right place.
In this guide, you’ll find out everything you need to know about cheap business loans, including what they are and where you can find them.
Let’s get this show on the road.
What’s in this guide?
Top 5 cheap business loan providers
Type: Alternative finance provider
Loan amount: £2,500 to £300,000
Typical APR: No APR
Loan term: Bespoke
Liberis is one of the only finance providers to offer no APR on their loans, which means no interest to pay back – all you need to do is pay off one fee, so you know exactly what you will be paying.
This makes their loans some of the cheapest in the market, so they should be considered for cheap business loans.
Company rating on Reviews.co.uk: 3/5
2. Startup Loans
Loan amount: Up to £25,000
Typical APR: 6%
Loan term: 1 to 5 years
Startup Loans is a government program to help startup companies to get the necessary finance that they need, especially when banks may have rejected your application.
As long as you have a solid business plan, you could get funding of up to £25,000 to start up your brand new franchise.
This can help you well on your way to establishing your franchise, even though they don’t offer loans as large as some other companies.
Representative: Borrowing £25,000 for three years means that you will pay monthly instalments of £760.55, so in total, you will be paying back £27,379.74 which means £2,379.74 of interest.
Company rating on Trustpilot: 1/5
3. Fair Finance
Type: Alternative finance provider
Loan amount: £10,000 to £30,000
Typical APR: 1.2% to 4.2%
Loan term: 6 months to 3 years
Fair Finance has a simple mission; make finance more accessible, fairer and honest.
They believe that many are excluded when it comes to great deals and trustworthy relationships in this space, so they hope they can help customers across the UK get a fair deal.
This is why they offer very low-interest rates and work with charities to offer free money advice.
Company rating on Trustpilot: 4/5
4. Funding Circle
Type: Peer-to-Peer Lender
Loan amount: £5,000 – £500,000
Typical APR: Rates start from 4.5% per year AER
Loan term: 6 months to 5 years
Funding Circle is one of the peer-to-peer lenders that have been sprouting up around the UK in the last few years.
With a peer-to-peer platform, the lenders are regular citizens that want to help their savings grow by investing in UK businesses.
For businesses, this means low AER and only a couple of extra fees.
Representative: Borrow £20,000 for 12 months with fixed monthly payments of £1,752 a month, with a completion fee of 2.5% and interest of around £526. Total amount payable is £21,026.
Company rating on Trustpilot: 5 / 5
5. Shawbrook Bank
Loan amount: £250,000 to £25 million
Typical APR: 0% to 19.9% APR
Loan term: Bespoke repayments
Shawbrook Bank offers their business customers a range of services tailored to their companies, like asset finance, working capital solutions, the point of sale finance and structured finance, as well as commercial mortgages too.
With a potentially low-interest loan available, this is perfect for customers who need a cheap business loan.
Company rating on Trustpilot: 5 / 5
The top five business loan providers take into consideration their customer reputation, the amount you can borrow and the typical APR or interest rates, to ensure that you’ll be getting the best deals for you and your company.
What is a cheap business loan?
Cheap business loans often have a low APR or low-interest rate, as it reduces the amount you will need to pay back ontop of your loan.
A low-interest business loan is merely a business loan, but with a lower rate of interest, so you have less you need to repay.
So, what is interest?
Interest is when you have to pay back a further cost on top of your loan, as a payment for being able to borrow that amount of money.
Low interest means less that you have to pay back.
A business loan can come from many different places, so as a business owner you should always try and consider as many possible solutions as possible to find the best deal.
What are secured and unsecured loans?
Secured loans are loans that your business can take out by assuring the lender with security such as your home or a car.
So they will allow you to borrow money as long as they have something for collateral in the case that you don’t make your repayments.
This lowers the risk to your bank or lender, which means that sometimes you can borrow more money.
Unsecured loans don’t have any security set against it, so your bank or another lender will regard them as being much riskier.
This is why you can usually only borrow a low amount of capital.
What are fixed and variable rates?
These types of loans show the contrast in loan interest rates.
Having a fixed rate loan means that your interest rates are set, or remain unchanged which is excellent when it comes to low-interest rates.
This makes it easier to predict how much your loan will cost, and your monthly repayments.
Variable rate loans, on the other hand, will change according to those set by the MPC (Monetary Policy Committee), which is an independent body.
What are the term lengths?
When it comes to the length of a loan, this can affect your interest rates a great deal because it will state the overall total that you pay back.
For instance, a short-term loan will have the highest interest rates, so it makes financial sense for the lender.
However, longer-term loans will usually have the lowest interest rates, as you’re borrowing for a more extended amount of time and will likely be paying back more either way.
What is the average interest rate of a low-interest loan?
The average interest rate is typically between 4% and 5%.
This can vary depending on the type of lender that you choose to get your loan from.
Which interest rate loan would be best for me?
It is important to remember that opting for a variable rate loan is usually riskier than a fixed rate loan.
This is because you will run the risk of having to pay more interest depending on which way the market sways, and benefitting from a decreased interest rate is rarer.
Fixed interest rates can protect you from rising interest rates, so this is usually better for businesses that need a lower risk loan.
It could also depend on the funder themselves, as with many government loans, for instance, you can also benefit from getting free advice and mentorship.
What will I need to apply?
To apply for a small business loan, this is what you’ll need:
Provide your accounts
Understandably, you need to provide detailed accounts for your business.
You need to ensure that you are completely transparent, as it could negatively affect your loan application.
After all, there’s nothing wrong with turning a business around and making it profitable but you need to be clear about that.
State your revenue
Your revenue projections need to be a realistic revenue forecast for the business.
For instance, you could create a few scenario examples to show your potential lender the likelihood of different outcomes.
This will give them more assurance that you have prepared for different situations.
You should also make sure that you note your cash flow, as part of your finances.
Craft a solid business plan
Although this doesn’t have to be the length of a novel, you should ensure that you are making a credible case for the loan you want to take out.
This includes things such as what you intend to do with the business you are running or intending to buy, like whether you want to keep it as it is or make improvements.
Offer a valid valuation
Businesses might be valued between three and eight times their profit, depending on the situation and the business.
Having an accurate valuation is very important for potential investors, so getting it right is essential for both your application and when looking for funding from different sources.
You should keep your resume short and precise, to give just enough information to make your lender confident enough that they are taking a reduced risk by lending to you.
This could include some of your skillsets and experience in a relevant field.
This will usually include everything that you own like your home, and what you owe regarding a mortgage.
Usually, you have to provide bank statements for the last six to 12 months, proof of your identification and whereabouts you live, this can be done by submitting your passport or something similar.
Have you found the perfect low-interest loan for you and your business?