Business loans: fixed instalments, a clear end date, and the small print to read first

A business loan gives your limited company a lump sum, repaid in fixed instalments with interest over an agreed term. It's the easiest form of finance to compare because the price is a rate and the end date is known. The things that separate a good loan from a bad one are mostly in the small print: fees, security, the personal guarantee and what happens if you repay early.

How it works

The British Business Bank describes a business loan as money a lender provides that the borrower pays back, with interest, over an agreed period.

There are two broad kinds:

• Unsecured loans. No specific asset is pledged. The British Business Bank notes that you'll often need to give a personal guarantee, and that unsecured loans typically carry higher interest rates than secured ones.
• Secured loans. Backed by an asset, usually property, sometimes other assets or a third-party guarantor.

Funders also commonly take a debenture: a charge over the company's assets, often fixed charges over specific assets plus a floating charge over everything else. A charge created by a company is registered at Companies House, and the statement of particulars must be delivered within 21 days beginning with the day after the charge is created. That's why any later funder can see who ranks ahead of them.

How the cost works

Worked example. £100,000 at 18% APR over 24 months, repaid monthly:

• Monthly instalment: £4,992.41
• Total repaid: £119,817.84
• Interest: £19,817.84

Interest is charged on the balance still outstanding, so it falls each month as you repay. That's why an 18% APR loan costs about 20p per pound borrowed over two years, not 36p.

Then add the fees. An arrangement fee taken from the loan means you receive less than £100,000 but repay the same instalments, which pushes the real APR up. Run the final offer through the offer checker using the amount that actually lands in your account.

Sterling's take: the headline rate is the start of the comparison, not the end of it. Total repayable divided by amount received is the number that matters.

The Growth Guarantee Scheme

The Growth Guarantee Scheme is run by the British Business Bank on behalf of the Secretary of State for Business and Trade. Accredited lenders offer term loans, overdrafts, asset finance, invoice finance and asset-based lending under it, generally up to £2m per business group, and the scheme covers 70% of the lender's loss on the outstanding balance after normal recovery.

What that means for you:

• Your company remains 100% liable for the debt. The cover protects the lender, not the borrower.
• Personal guarantees can still be taken at the lender's discretion, but a principal private residence can't be taken as security under the scheme.
• The lender decides, using its normal credit and fraud checks.
• Turnover eligibility is currently up to £45m; an increase to £54m was announced in July 2026.

Ask Sterling has no connection with the British Business Bank or the scheme, and our funding partner doesn't arrange it. If it suits you, go to an accredited lender directly.

Who a business loan suits

• A one-off need with a clear payback: an expansion, a fit-out, buying another business, refinancing dearer debt.
• Companies with filed accounts and stable bank statements that show the instalment is comfortable.
• Owners who want certainty: the same payment every month and a known end date.

Who it doesn't suit

• A recurring, uneven cash gap. You'd pay interest on money sitting idle; a revolving credit facility fits better.
• Buying a specific machine or vehicle. Asset finance uses the asset as security and is often simpler.
• A company that can't yet show the instalment is affordable from current trading.

What funders look at

• Companies House. Trading age, accounts filed on time, directors, confirmation statements and existing charges.
• Accounts and management figures, especially for larger loans: profit, not just turnover.
• Bank statements. Average balance, overdrawn days, returned payments and existing finance debits.
• CCJs. A county court judgment stays on record for 6 years unless paid in full within a month.
• Director credit history, especially where a personal guarantee is involved.
• HMRC arrears, including VAT, PAYE and Corporation Tax.

If your bank says no

Under the Bank Referral Scheme, the British Business Bank notes that participating banks must, by law, offer to refer a business they've turned down to a finance platform. Ask your bank about it before you shop around elsewhere, and find out why you were declined: the reason tells you what to fix.

Red flags

• An arrangement or "broker" fee that has to be paid before any offer is made.
• Early settlement terms that charge most of the remaining interest.
• A personal guarantee that's unlimited when the loan is small, or that's joint and several across directors without you understanding what that means.
• A debenture on a small unsecured loan, which may get in the way of future finance.
• A rate quoted per month only.

Business loan vs the alternatives