UK business loan costs vary widely depending on your lender type: high-street banks typically charge 7–13% representative APR on unsecured loans, while alternative lenders can reach 25–99% APR. Arrangement fees range from £0 to several thousand pounds, and early repayment penalties add further to the total cost of borrowing. Here is what to expect in 2026.
For the full pricing picture, see our PayPal Working Capital guide.
- UK business loan APRs range from 3.1% (HSBC) to 12.24% (NatWest) - your rate depends on turnover, trading history, security offered, and loan purpose
- On a £50,000 loan at 12% APR over 5 years, total repayment is ~£66,700 - settling after 2 years saves approximately £18,000 in interest
- Watch for early repayment penalties of 1–5% of outstanding balance - these can negate savings from paying off early, especially in the first 12 months
- Arrangement fees add £0–£2,500 upfront - some lenders fold these into the loan, increasing your total interest cost over the term
- Always compare total cost of borrowing, not just the APR - a lower rate with high fees can cost more than a higher rate with zero arrangement charge
Business Loan Cost Snapshot: UK 2026
Unsecured business loans from UK high-street banks currently carry representative APRs of 7.1% (HSBC) to 12.24% (NatWest). Alternative lenders charge significantly more – Funding Circle starts at 6.9% for strong applicants, while specialist lenders like Capify can reach 24–99% APR. No arrangement fee is now the norm among banks, though Funding Circle charges an undisclosed completion fee.
The table below shows verified 2026 rates from lenders we have reviewed, covering representative APR, arrangement fees, and early repayment costs. All APR figures are for unsecured products unless stated.
| Lender | Loan Range | Rep. APR | Arrangement Fee | Early Repayment |
|---|---|---|---|---|
| Funding Circle | £10K – £750K | From 6.9% | Undisclosed | £0 |
| HSBC | £1K – £25K | 7.1% | £0 | 1 month + 28 days interest |
| Santander | £2K – £25K | 7.9% | £0 | Not stated |
| TSB | £1K – £1M | 9.9% | £250 | Not stated |
| Barclays | £1K – £100K | 11.2% | £0 | £0 |
| NatWest / RBS | £1K – £100K | 12.24% | £0 | £0 |
| Capify | £5K – £3M | 24 – 99% | £249–£649 + 4% origination | £0 |
Source: ExpertSure research, verified March 2026. Representative APR is the rate that at least 51% of successful applicants receive – your actual rate may differ based on creditworthiness and loan amount.
Interest Rates by Lender Type
High-street banks offer the lowest rates (7–13% APR) but require good credit and, in some cases, an existing business account. Challenger banks and online lenders compete on speed and accessibility but typically charge 15–35% APR. Specialist and revenue-based lenders may exceed 50% APR, with fees adding further to the true cost.
For a broader view, see our guide to the business lines of credit.
High-Street Banks (7–13% APR)
The Big Four banks – HSBC, Barclays, NatWest, and Santander – currently advertise representative APRs between 7.1% and 12.24% for unsecured business loans up to £25,000. TSB, which operates with a similar high-street model, quotes 9.9% APR but adds a £250 arrangement fee not charged by the others.
Key rate differences to note: HSBC’s 7.1% representative APR is the lowest among the Big Four, but it only applies if you borrow over £10,000 – rates jump to 11.3% for loans under that threshold. Barclays offers the most transparent tiered structure, falling from 14.9% APR for micro-loans under £5,000 to just 8.5% APR for loans between £15,000 and £25,000.
Santander stands out with a 12-month interest-free period on its small business loan – a feature unique among UK high-street banks. On a £20,000 loan, this could save over £1,500 in interest costs compared with an equivalent HSBC product, even though Santander’s headline APR is marginally higher at 7.9%. The catch: you must hold a Santander business current account.
Online / Challenger Lenders (6.9–25% APR)
Funding Circle quotes rates from 6.9% APR for the strongest applicants – technically lower than any high-street bank. However, it charges an undisclosed completion fee on every loan (the exact amount is not published), which makes direct cost comparison difficult. Funding Circle also requires a minimum one-year trading history and does not lend below £10,000.
Other online lenders such as iwoca and Fleximize typically operate in the 18–36% APR range. They compensate with faster decisions (minutes rather than days), more flexible eligibility, and options for businesses that would not qualify for bank lending.
Specialist and Alternative Lenders (25–99%+ APR)
Alternative lenders serve businesses that cannot access bank finance – typically because of trading history under one year, adverse credit, or the need for same-day funding. Their products are genuinely different in structure, not simply more expensive versions of bank loans.
For a closer look at this provider, read our full Pulse Finance review.
Capify, for example, offers unsecured business loans from £5,000 to £3,000,000 at APRs ranging from 24% to 99%. This wide range reflects risk-based pricing: a business with strong turnover and clean credit will pay far less than one with county court judgements or under six months of trading history. Capify also charges a processing fee of £249–£649 depending on loan size, a 4% origination fee, and a £24.90 monthly service fee – all of which compound the effective cost.
Worked Cost Examples
A £20,000 bank loan over 5 years at 7.1% APR costs approximately £396/month, with total interest of around £3,760. The same amount over 12 months from an alternative lender at 50% APR costs roughly £1,980/month – more than doubling the monthly outlay and adding £3,760 in interest on a fraction of the term.
Published representative examples from verified lender sources give the clearest picture of real borrowing costs:
| Lender | Amount | Term | APR | Total Repayable | Monthly Cost |
|---|---|---|---|---|---|
| TSB (rep. example) | £13,000 | 60 months | 9.94% | ~£16,560 | ~£276 |
| HSBC (est.) | £20,000 | 60 months | 7.1% | ~£23,760 | ~£396 |
| NatWest (est.) | £20,000 | 60 months | 12.24% | ~£26,900 | ~£448 |
| Capify (published) | £10,000 | 12 months | 47.9% | £12,100 | ~£1,008 |
| Capify (published) | £24,000 | 12 months | 67.89% | Not stated | Varies |
The Capify figures above are from published representative examples, not estimates. The TSB example is TSB’s own published representative example (AIR 9.06%, APR 9.94%, verified January 2026). The HSBC and NatWest figures are estimates using standard amortisation at the lender’s stated representative APR and do not account for any early repayment charges.
Arrangement Fees: What They Add to the Cost
Most major UK banks now charge zero arrangement fees on business loans under £25,000. TSB is the exception at £250. Alternative lenders often charge 1–5% of the loan value, making the true APR significantly higher than the headline interest rate suggests.
An arrangement or origination fee is charged upfront – or added to the loan balance – at the point of completion. Even a seemingly modest fee can materially increase the total cost of a short-term loan.
On a £10,000 loan over 12 months at 15% APR, a 4% arrangement fee (£400) increases the effective annual rate from 15% to approximately 19.4% – and at Capify’s structure (processing fee + 4% origination + monthly service fee), the effective cost can reach the 47–68% APR range shown in their published examples.
When comparing lenders, always calculate the total amount repayable – interest plus all fees – rather than comparing APRs in isolation, particularly for loans under 18 months where fees represent a higher proportion of total cost.
Early Repayment: Does Clearing Early Save Money?
With Barclays and NatWest, clearing your loan early saves money – no early repayment charge applies. HSBC charges a penalty equivalent to roughly one month of interest plus 28 days, which erodes part of the saving. Funding Circle also charges nothing for early repayment, making it a strong choice for businesses expecting to repay ahead of schedule.
Early repayment is worth modelling carefully, particularly if your business has seasonal cash flow or expects a liquidity event (sale of an asset, contract payment, equity round) during the loan term.
- Rule of thumb: For loans over 24 months — check whether your lender charges an early repayment fee and by how much
- On a £50,000 loan at 12% APR over 5 years — settling after 2 years saves approximately £18,000 in interest
- unless an early — repayment penalty of 2
- — balance negates part of that saving
Fixed vs Variable Interest Rates
Fixed rates protect you from Bank of England base rate increases and make budgeting straightforward. Variable rates – typically base rate plus a margin – can fall over time but also expose you to higher payments if rates rise. For most SMEs borrowing under £100,000 over 1–5 years, a fixed rate is usually preferable for cash flow certainty.
As of March 2026, the Bank of England base rate stands at 4.75%. Most high-street bank business loans under £25,000 use fixed rates – the products from HSBC, Santander, Barclays, and TSB reviewed here are all fixed. Variable rate products typically become available for larger loans (£25,000+) and longer terms (10+ years), where the rate risk is shared between the borrower and lender.
NatWest offers both fixed-rate and variable-rate facilities from £25,001, with fixed periods available at 3, 5, 7, 10, and 15 years. This is useful for businesses that want some rate certainty without locking in for the full 25-year maximum term.
How Lenders Set Your Interest Rate
Your rate is determined by the lender’s risk assessment, not simply your credit score. Key factors include: time in business, annual turnover, existing debt levels, sector risk, loan-to-value if secured, and whether you already hold an account with that lender. The representative APR is what most applicants pay – but high-risk profiles may be quoted several percentage points higher.
Lenders in the UK use risk-based pricing, meaning the rate you are offered depends on their assessment of the probability of default. The representative APR shown in advertising is the rate that at least 51% of approved applicants must receive – which means up to 49% could be quoted a higher rate than advertised.
The factors most commonly weighted in business loan pricing decisions include: trading history (most banks want at least 2 years of accounts), annual turnover, sector classification (some industries are treated as higher risk), existing debt commitments, and the personal credit history of directors. For secured lending, the loan-to-value ratio of the collateral also directly affects the rate offered.
One practical way to improve the rate you are offered is to apply with your existing bank first – most lenders offer their lowest rates to established customers where they already hold transactional data. HSBC’s small business loan, for example, does not require an existing account, but Santander’s does – and Santander’s rate (7.9%) plus interest-free period may be cheaper in total than HSBC (7.1%) if you already bank with them.
How to Reduce Your Business Loan Costs
The most effective cost reduction strategies are: borrowing only what you need (interest accrues on the full balance), choosing a lender where you already have a relationship (often lower rates), selecting the shortest viable term, and using a broker to access multiple lenders simultaneously. Timing also matters – applying when your accounts look strongest improves the rate you are offered.
Beyond choosing the lender with the lowest published rate, there are several practical steps that consistently reduce the cost of business borrowing:
Borrow the minimum you actually need. Interest accrues on the full loan balance, so over-borrowing to have a buffer is expensive. If you need £15,000, do not borrow £20,000 on the assumption it is easier to apply once.
Match the term to the asset or need. Borrowing over 5 years for a 12-month cash flow problem means paying interest on a balance you could have cleared much sooner. Conversely, a 5-year loan for a piece of equipment with a 10-year useful life is usually well-structured.
Use a whole-of-market broker for larger loans. For amounts above £50,000, a broker with access to 20+ lenders can often source rates that are not available on the open market, and the broker fee (typically 1–2% of the loan) is frequently recovered through the better rate secured.
Check government-backed schemes first. The Growth Guarantee Scheme (GGS), which replaced the Recovery Loan Scheme in July 2024, offers government guarantees to lenders that allow them to offer lower rates to businesses that might not otherwise qualify. Santander, NatWest, and several other UK banks participate.
Related Business Loan Guides
Compare individual lenders in depth with our verified reviews, or explore loan types to find the best structure for your funding need.
Use these guides to research further:
- HSBC Business Loans Review 2026 – 7.1% APR, no arrangement fee, Kinetic app for sole traders
- Barclays Business Loans Review 2026 – accepts startups, zero early repayment fee
- NatWest Business Loans Review 2026 – highest unsecured cap at £100,000
- Santander Business Loans Review 2026 – 12 months interest-free
- Funding Circle Review 2026 – from 6.9% APR, up to £750K
- Short-Term Business Loans UK – 3–18 month funding options compared
- Business Loans for Bad Credit – lenders that consider adverse credit histories
- Self-Employed Business Loans UK – how sole trader loan costs differ from limited company borrowing
- Business Debt Consolidation Loans – when consolidating is cheaper than maintaining multiple lines
- Merchant Cash Advance UK – how factor rates compare to APR for card-processing businesses
