A business loan is a loan specifically intended for business purposes. As with all loans, it involves the creation of a debt, usually with a specific purpose in mind, to be repaid with added interest.

Traditionally, businesses at all stages of growth have looked first to their own bank for a loan – but there are now many providers, and it may pay to shop around for the best rate.

Entrepreneurs benefit from the knowledge, insight and network of advisers such as their accountant, who deal day-to-day with banks and other finance providers. However, businesses themselves should cultivate relationships with banks and other finance providers, who may help meet future financing requirements rather than just the immediate needs.

To obtain a bank loan, management must prove to the lender that the business will generate the income and cash to both repay the facility according to the terms of the loan, and service the loan by meeting interest payments.

Market conditions and regulatory requirements, such as those that mandate responsible lending to viable businesses, may also affect the ease with which a business can access a loan or overdraft. It is likely that the business will need to provide security for any money borrowed against other personal or business assets.

Debt funds

Increasingly debt funds are offering loans directly to businesses. This is more suitable for larger businesses and has developed in the wake of the financial crisis, as banks have been forced to reduce the size of very similar to a bank loan in relation to the terms. Often debt funds will co-lend alongside banks.

Responsible finance providers

If your business is unable to access the finance you need from a bank, responsible finance providers are a good alternative.

They provide fair and affordable loans to new and existing businesses across the UK and are specifically designed to help the businesses that are viable but unable to meet bank lending criteria – such as track record or security.

To find your nearest responsible finance provider visit findingfinance.org.uk.

Alternatives

• For those trading for less than 24 months, a start-up loan may be suitable.
• Established businesses may also consider peer-to-peer lending.
• Leasing and hire purchase agreements may also be a good alternative to a traditional business loan.

Coronavirus support options

A number of finance solutions have been provided to support UK businesses manage the impacts of the coronavirus pandemic, including business interruption loans, bounce back loans and recovery loans.

Read ICAEW's summary of the available options on icaew.com/coronavirus, 

• Speak to your bank or financial adviser.
• How to find the right financial advice
• Visit the UK Finance website.