Business loan interest rates UK what affects the rate you're offered

Business loan interest rates UK lenders quote can vary enormously from one application to the next, because pricing isn't set from a single published rate card the way it might be for, say, a mainstream mortgage. Instead, each lender works out a rate for your specific application based on the lender you approach, the type of loan you want, and your own risk profile as a borrower.

There's no single "normal" rate for a business loan, and any page that quotes one flat figure is really only giving you a snapshot that's likely to be out of date by the time you read it. What we can tell you with confidence is the shape of the picture: unsecured business loans, where you don't put up any collateral, are generally priced higher than secured lending, because the lender is taking on more risk with nothing to fall back on if repayments stop. Loans secured against business or personal assets tend to sit at the more competitive end of the pricing spectrum, reflecting that reduced risk to the lender.

Rather than benchmarking against a figure that may have already moved, the more useful question is what your own quote is built from. For a wider look at how business finance works across different loan types, read our full business loans guide, or speak to an advisor for a personalised rate indication based on your trading history and credit profile.

Most business loan pricing starts from the Bank of England base rate, with each lender adding its own margin on top to reflect its cost of funding, the level of competition it faces, and the risk it's taking on with your particular application. When the base rate moves, lenders typically adjust new lending over time, though the pace and scale of any change varies between lenders and loan types. For the latest confirmed base rate, see the Bank of England's official bank rate data.

You'll often see lenders quote a representative APR, designed to give you a benchmark for comparing products - Financial Conduct Authority rules require this to be a rate that at least 51% of successful applicants receive or beat. It's a useful starting point, but your actual rate depends on your own circumstances. There's an added wrinkle for business borrowing too: many loans taken out by limited companies are commercial lending that sits outside the standard consumer credit disclosure rules applying to personal borrowing, so representative APR requirements don't always apply in the same way. Sole traders borrowing in a personal capacity are more likely to see standard consumer credit protections apply.

Business loans can also be priced on a fixed or variable basis. A fixed rate stays the same for the agreed term, giving you certainty over repayments regardless of what happens to the base rate. A variable rate moves in line with a reference rate, usually the Bank of England base rate plus a margin, so your repayments can rise or fall over the term. Neither approach is inherently better - it depends on how much certainty your cash flow needs.

Lenders assess a wide range of factors before deciding what to offer you. Understanding what they're looking for can help you present the strongest possible application, and in some cases avoid approaching lenders unlikely to offer competitive terms for your situation. Even businesses with a bumpy credit history can often access bad credit business loans from specialist lenders, though pricing typically reflects the added risk.

The clearest single factor shaping how your business loan is priced is whether it's secured or unsecured. Rather than attaching numbers that will move with the market, here's how the two options compare in relative terms.

Secured lending, including secured business loans and asset finance, is generally priced more competitively because the lender has a specific asset to fall back on if things go wrong. Where that asset is your home rather than a business asset, the risk is serious and needs to be weighed carefully. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

Unsecured lending doesn't tie a specific asset to the loan, but for limited companies it typically comes with another form of security instead: a director's personal guarantee. This means that if the business can't repay, the director becomes personally liable for the debt. It's a factor that materially affects what counts as "a good rate" for your own circumstances - a slightly higher rate on an unsecured loan without a personal guarantee might suit you better than a lower rate that puts your personal finances on the line.

If you're a pre-trading founder or you've been trading for under five years, the Start Up Loans scheme is worth checking before you approach the wider market. It's a government-backed personal loan used for business purposes, aimed at businesses trading for up to 60 months, and it sets a single fixed annual rate for all successful applicants rather than pricing case by case the way most commercial lenders do.

Because that rate is set by the scheme itself and reviewed periodically, we won't restate a figure here that may have changed by the time you read this. For the current confirmed rate and eligibility criteria, check the official gov.uk Start Up Loans guidance, which is kept up to date by the British Business Bank.

Because it's a fixed rate set by policy rather than negotiated individually, the Start Up Loans scheme can be a useful benchmark to have in mind before you compare quotes from commercial lenders, even if you ultimately choose a different route.

We can't tell you whether 7%, or any other specific figure, is a good rate for you, because the same headline rate can be a strong offer for one business and a poor one for another. What matters is what's behind the number.

A 7% rate on an unsecured loan to a business with a thin trading history and no personal guarantee offered might be a genuinely competitive offer. The same 7% on a loan secured against valuable business assets, from an established business with a strong credit history, might be considerably higher than it should be. Context changes everything.

Instead of asking whether a specific percentage is good in the abstract, it's more useful to ask:

• How does this rate compare with other quotes for the same loan type and security arrangement?
• Does it reflect your actual trading history and credit profile, or is it priced as if you were a higher-risk borrower?
• What fees, if any, sit alongside the headline rate, and how do they affect the total cost?

Getting a second opinion from an advisor who can compare your quote across a range of lenders is the most reliable way to find out whether what you've been offered is genuinely competitive for your circumstances.

Genuinely interest-free business lending is rare in the UK market. Where you do see 0% mentioned, it's almost always tied to a specific promotional offer, an introductory period on a business credit card or overdraft facility, or a local authority or government-backed scheme with its own eligibility conditions, rather than a standard product any lender offers universally.

Be cautious of any offer that markets itself as unconditional 0% finance without clear terms attached. It's always worth checking what happens after any introductory period ends, and whether fees elsewhere in the agreement make up for the headline rate. If an offer looks unusually generous, ask what conditions apply and get the terms confirmed in writing before committing.

No single lender is universally "best" for a business loan rate, because pricing depends on your specific circumstances as much as the lender you choose. Rather than chasing one headline name, it helps to understand how different types of lender approach pricing.

To compare the best business loan lenders for your own situation, it's worth looking across lender types rather than a single bank's product page, since your ideal fit depends on your trading history, security, and how quickly you need funds.

While you can't control the wider lending market, there's a lot within your control that can improve the rate you're offered. Here's where to start.

Most business loans covered on this page are commercial lending to limited companies or sole traders, which generally sit outside the standard consumer credit protections that apply to personal borrowing. It's worth understanding what this means before you sign an agreement.

If you're asked to offer a personal guarantee, you're agreeing to become personally liable for the debt if your business can't repay it. This is common for unsecured lending to limited companies, and it's a serious commitment that deserves the same careful thought as any personal borrowing decision. If your borrowing is genuinely secured against your home rather than business assets, the standard warning applies: your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.

If you're finding it difficult to keep up with any repayments, or you're worried about a personal guarantee you've signed, free and impartial guidance is available from MoneyHelper on 0800 138 7777.

To see how business loan rates compare with other types of borrowing, compare all our loan types, or speak to an advisor for a personalised rate indication based on your own circumstances.