Business Loans: The Complete Guide for UK Businesses

A business loan is money borrowed by a company from a lender, repaid over an agreed term with interest, and used for growth, working capital, acquisitions, investment or refinancing. In the UK mid-market, "business loans" covers senior term loans, revolving credit facilities, acquisition finance, recurring revenue finance and government-backed Growth Guarantee Scheme facilities. Growth Business Finance (GBF) arranges business loans from £200k to £100m for established UK businesses.

Key facts

• Size: GBF arranges business loans from £200k to £100m.
• Senior term loans: from 6.5% a year or 2.5% over Bank Rate, up to 4x EBITDA, unsecured up to £2m, over 1 to 10 years.
• Revolving credit facilities (RCFs): from 2.5% over Bank Rate, 3 to 5 years committed.
• Acquisition finance: up to 5x EBITDA, up to 7 years.
• Recurring revenue finance: up to 70% of annual recurring revenue (ARR).
• Growth Guarantee Scheme: up to £2m per group, with a 70% government guarantee to the lender.
• Bank Rate is currently 3.75%. Every facility is priced deal by deal.

How business loans work

Most mid-market business lending is cash flow lending. The lender sizes the loan on your earnings, usually EBITDA, and on your ability to service the debt, rather than purely on the value of your assets. The lender then sets the term, the repayment profile, the security and the covenants you must meet.

Senior term loans

A senior term loan is a fixed amount drawn up front or in tranches and repaid over 1 to 10 years. GBF arranges senior term loans from 6.5% a year or 2.5% over Bank Rate, at up to 4x EBITDA. Facilities of up to £2m can be unsecured, depending on the business. Repayment can be amortising, partly deferred or with a balloon at the end.

Revolving credit facilities

An RCF is a committed facility you can draw, repay and redraw over its life, usually 3 to 5 years. You pay interest on what you draw and a smaller fee on the undrawn amount. GBF arranges RCFs from 2.5% over Bank Rate. RCFs suit businesses that need flexible headroom rather than a single lump sum.

Acquisition finance

Acquisition finance funds the purchase of another business, a buy-and-build strategy, an MBO or an MBI. GBF arranges acquisition finance at up to 5x EBITDA over terms of up to 7 years, often combining term debt with an RCF and sometimes asset based lending. Our debt advisory service runs these processes end to end.

Recurring revenue finance

For subscription and software businesses, lenders can size facilities on contracted recurring revenue rather than EBITDA. GBF arranges recurring revenue finance at up to 70% of ARR, which can suit growing technology companies that are investing ahead of profit.

Growth Guarantee Scheme

The Growth Guarantee Scheme gives accredited lenders a 70% government guarantee on eligible facilities of up to £2m per group. It can help businesses that are viable but lack the security or track record a lender would normally want. The borrower remains fully liable for the debt.

Who business loans suit

Cash flow lending works across most sectors where earnings are stable and visible:

• Professional services firms funding growth, partner buyouts or acquisitions
• Technology and software businesses using recurring revenue finance
• Healthcare providers funding new sites, equipment or consolidation
• Food and drink and consumer brands funding capacity and new channels
• Business owners and management teams buying a company or buying out a shareholder

Businesses with large debtor books and stock, or that own property, may raise more or pay less through ABL or a commercial mortgage.

Costs and terms

Pricing is set deal by deal. GBF arranges:

• Senior term loans from 6.5% a year or 2.5% over Bank Rate, up to 4x EBITDA, unsecured up to £2m, over 1 to 10 years
• RCFs from 2.5% over Bank Rate, 3 to 5 years committed
• Acquisition finance up to 5x EBITDA, up to 7 years
• Recurring revenue finance up to 70% of ARR
• GGS facilities up to £2m per group

Beyond the rate, the full cost includes arrangement fees, any non-utilisation fees on an RCF, legal costs, and early repayment terms. Covenants such as leverage and interest or debt service cover also matter, because they decide how much flexibility you have if trading changes.

Eligibility and what lenders look at

• Earnings and cash flow: EBITDA, its quality and its trend, and how comfortably cash flow covers interest and repayments
• Leverage: total debt as a multiple of EBITDA, including existing borrowing
• Track record: filed accounts and management accounts that show a consistent story
• Purpose: what the money is for and how it will create value
• Management: experience, depth and the credibility of the business plan
• Security: a debenture over the business is common, and personal guarantees may be requested on some deals
• Forecasts: a realistic projection showing the debt can be serviced and repaid

Secured or unsecured, and what security means

Security is one of the most misunderstood parts of business lending.

• Unsecured loans do not take a charge over specific assets. GBF arranges senior term loans unsecured up to £2m, depending on the strength of the business. Lenders may still ask for personal guarantees from the directors.
• A debenture is a charge over the assets of the company as a whole. It is common on larger term loans and RCFs and gives the lender priority over unsecured creditors.
• Asset-specific security includes charges over property, plant or receivables. Where a business owns significant assets, using them can increase the amount available or reduce the cost.
• Personal guarantees make a director personally liable for some or all of the debt. Their scope and amount can often be negotiated, so they should never be signed without understanding exactly what is covered.

The right answer depends on what the business owns, what it needs and how it wants to balance cost, flexibility and personal exposure. Where assets are significant, comparing a cash flow loan with asset based lending or a property-backed facility is usually worthwhile.

Documents you will need

• Three years of filed accounts
• Current-year management accounts, ideally less than three months old
• A monthly cash flow forecast for at least 12 months, plus a three-year projection for larger facilities
• Aged debtor and creditor reports
• Business bank statements
• A schedule of existing debt, leases and security
• A summary of the purpose of the funding and the business plan
• For acquisitions, information on the target, the price and the deal structure

Business loan types compared

Common mistakes to avoid

• Choosing the product before the problem. A term loan for seasonal working capital, or an overdraft for long-term investment, creates strain later.
• Approaching one lender only. Appetite and pricing vary widely between lenders. A decline from one is not a decline from the market.
• Weak information. Out-of-date management accounts or unrealistic forecasts slow everything down and weaken your negotiating position.
• Ignoring covenants. A cheap facility with tight covenants can be riskier than a slightly dearer one with headroom.
• Borrowing to the limit. Leave room for trading to move against you.
• Leaving refinancing late. Start well before a facility expires so you are not negotiating under pressure.

How a broker and debt adviser like GBF helps

GBF is a commercial finance broker and debt adviser, not a lender. We run the debt process so you can keep running the business.

1. Initial review. We review your accounts, forecasts and existing debt and give a clear view of what is realistic.
2. Structuring. We decide the right mix of term debt, RCF, ABL, GGS or property-backed lending, and the right size, term and repayment profile.
3. Credit paper. We prepare a credit paper that tells your story clearly and answers lenders' questions before they ask them.
4. Lender selection. We approach the lenders best suited to the deal from our whole-of-market panel of 650+ lenders, from banks to specialist and private credit lenders.
5. Negotiation. We compare terms side by side and negotiate pricing, fees, covenants and security.
6. Completion. We manage due diligence, legal documentation and conditions precedent through to drawdown.

Our financial calculator helps you model repayments, and the business loans page sets out the full range of facilities we arrange.

FAQs

How much can my business borrow?

GBF arranges business loans from £200k to £100m. Senior term loans go up to 4x EBITDA, and acquisition finance up to 5x EBITDA, subject to affordability and lender approval.

What interest rate will I pay on a business loan?

GBF arranges senior term loans from 6.5% a year or 2.5% over Bank Rate, and RCFs from 2.5% over Bank Rate. Bank Rate is currently 3.75%. Your rate depends on your business, the structure and the security, priced deal by deal.

Can I get an unsecured business loan?

Yes. Senior term loans of up to £2m can be unsecured, depending on the strength of the business. Lenders may still ask for a debenture or personal guarantees on some deals.

What is the difference between a term loan and an RCF?

A term loan is a fixed amount repaid over an agreed schedule. An RCF is a committed limit you can draw, repay and redraw over 3 to 5 years, paying interest only on what you use.

Can I borrow to buy another business?

Yes. GBF arranges acquisition finance at up to 5x EBITDA over up to 7 years, for acquisitions, buy-and-build, MBOs and MBIs.

How many lenders will GBF approach?

We approach the lenders best suited to your deal from our whole-of-market panel of 650+ lenders, based on your sector, size, structure and purpose, rather than sending your information to the whole market.

How long does it take to arrange a business loan?

It depends on the size and complexity of the facility and how quickly information is available. A well-prepared pack and a clear structure are the biggest factors in keeping the timetable short.

Next step

If your business is looking to raise from £200k, start with check what you could raise for an initial view, or call Growth Business Finance on 020 3432 2341. Finance is subject to status and lender approval.

Tom Renshaw

Founder and Managing Director, Growth Business Finance

Tom arranges business loans, asset based lending and property finance for UK SMEs and mid-market companies. More about GBF