UK businesses can access nine distinct types of business loan, from standard term loans and overdrafts to specialist products like invoice finance, revenue-based advances, and asset finance. Choosing the right type determines not just cost but repayment flexibility, eligibility, and whether any assets are put at risk. This guide explains each type with typical costs and use cases.
- 9 distinct loan types available - from £1,000 overdrafts to £5,000,000 asset finance deals for UK businesses
- Best for businesses needing £25,000+ - secured loans offer lower rates for larger borrowing requirements
- Unsecured loans cost 15–25% more - higher risk means significantly increased interest rates versus secured options
- Invoice finance beats revenue finance by 30% - lower cost of funds when you have strong debtor book
- Asset finance offers 100% funding - purchase equipment without upfront deposit through hire purchase agreements
The 9 Types of Business Loan in the UK
The main types of business loan available to UK businesses are: (1) unsecured term loans, (2) secured term loans, (3) overdrafts, (4) revolving credit facilities, (5) asset finance (hire purchase / finance lease), (6) invoice finance (factoring / discounting), (7) revenue-based finance (merchant cash advance), (8) government-backed loans (Start Up Loan / RLS), and (9) trade finance. The right type depends on what you need the money for, how long for, and what you can offer as security.
| Type | Best For | Typical Cost | Repayment |
|---|---|---|---|
| Unsecured term loan | Working capital, growth | 8–60% APR | Fixed monthly |
| Secured term loan | Large capital investment | 6–15% APR | Fixed monthly |
| Overdraft | Cash flow timing gaps | 7–13% EAR on drawn balance | Revolving – repay as cash comes in |
| Asset finance | Equipment, vehicles, plant | 4–12% APR | Fixed monthly |
| Invoice finance | B2B businesses with unpaid invoices | 0.5–3% of invoice per 30 days | Repaid when invoice paid |
| Revenue-based finance | Card/online sales businesses | Factor rate 1.15–1.45× | % of daily sales – no fixed term |
| Government-backed | Startups, businesses declined by banks | 6% fixed (Start Up) or bank rate | Fixed monthly, 1–5 years |
| Trade finance | Import/export, stock purchases | 2–6% of facility | On shipment or payment receipt |
| Revolving credit | Recurring short-term needs | Similar to overdraft | Draw/repay as needed within limit |
Unsecured vs Secured Business Loans
Unsecured loans require no asset as collateral and can be arranged in 24–72 hours, but cost 2–4× more than equivalent secured products. Secured loans use property or assets as collateral, offering significantly lower rates and higher loan amounts, but take 4–8 weeks and put the pledged asset at risk. For amounts under £100K over 1–3 years, unsecured is usually the practical starting point. For £250K+ or 5+ year terms, secured lending should always be explored first if assets are available.
Invoice Finance vs Revenue-Based Finance
Invoice finance (factoring or discounting) suits B2B businesses with unpaid trade invoices – you receive 80–90% of invoice value immediately, with the remainder (minus fees) paid when your customer settles. Revenue-based finance (merchant cash advances) suits B2C businesses with card or online payment turnover – you receive a lump sum and repay via a percentage of daily sales, with no fixed term. Invoice finance is cheaper but requires business customers; revenue-based finance works for retail, hospitality, and e-commerce.
Asset Finance: When the Asset Is the Security
Asset finance (hire purchase and finance lease) lets you acquire equipment, vehicles, or plant without paying the full cost upfront – the asset itself serves as the lender’s security. With hire purchase, the asset transfers to your ownership at the end of the term. With a finance lease, you use the asset during the term and return it (or arrange a secondary lease) at the end. Asset finance rates are typically lower than unsecured loans (4–12% APR) because the lender can repossess and resell the asset if you default.
Which Type of Business Loan Is Right for You?
Match the loan type to the purpose: use asset finance for equipment/vehicles, invoice finance for cash flow tied up in unpaid invoices, an overdraft for recurring short-term timing gaps, a term loan for working capital or growth investment, and trade finance for import/export. Using the wrong product for a purpose – such as a long-term overdraft to fund what is really a capital purchase – is expensive and creates refinancing risk. When in doubt, speak to a broker (Think Business Loans, Swoop) who can match your need to the correct product.
- Best Business Loans UK 2026 – top-rated term loan providers
- Business Loan Costs & Rates 2026 – compare costs across all loan types
- What Is Invoice Factoring? – how invoice finance works in detail
- Asset Finance UK – hire purchase, finance lease, and equipment finance explained
- Business Overdrafts UK – how overdrafts compare to revolving credit
