How to compare business loan lenders: what to check beyond the rate

You compare business loan lenders in two steps: pick the kind of lender that suits what you are funding, then set their offers side by side on the total you will repay and the terms attached. Knowing how to compare business loan lenders matters because the headline rate is the least comparable number on the page. Lenders quote it in different ways, over different periods, with different fees on top.

This guide explains the method. If you want the providers themselves, our directory shows business lenders compared by product and published terms.

There are seven broad types of UK business lender, and each is built to fund a different thing. Applying to the wrong type can mean a decline that says little about your business.

How much each type will lend follows from what it funds: asset finance is sized against the asset, invoice finance against your unpaid invoices, revenue-based finance against recent sales and a term loan against what the business can afford.

Our lender profiles show three of these types in practice: iwoca is an online lender, Kriya provides invoice finance and YouLend is a revenue-based finance provider.

Public support works in two ways. Some funds lend directly: the Investment Fund for Northern Ireland, for example, offers loans from £25,000 to £2 million through its fund manager. Others work through commercial lenders, such as the Growth Guarantee Scheme, which gives the lender a 70% government-backed guarantee. The guarantee is to the lender, and the borrower always remains 100% liable for the debt.

Compare the total cost of credit first, then the terms that decide how the facility behaves when things change. These are the points that separate two offers with a similar rate:

• Total cost of credit. The full amount you will repay less the amount you receive, with every fee included.
• Fees. Arrangement, documentation, valuation, broker, annual and non-utilisation fees, and whether each is deducted from the advance or added to the debt.
• Repayment pattern. Daily, weekly or monthly, fixed or a share of sales. A weekly payment suits a business paid weekly and strains one paid quarterly.
• Early repayment. Whether settling early saves interest, costs a fee, or makes no difference to what you owe.
• Security and personal guarantees. What the lender can take if you do not pay, and whether a guarantee is capped or covers the whole debt.
• Speed. Online lenders and asset finance houses are generally quicker than banks, and secured or property-backed lending is generally the slowest. Treat any quoted timescale as an aim.
• Regulatory status. Whether the agreement itself would be regulated, which depends on who is borrowing and how much.

On that last point: most lending to limited companies is not regulated consumer credit. Under the Regulated Activities Order, a credit agreement can be regulated only where the borrower is an individual, which includes a sole trader, or a small partnership or unincorporated body, and business borrowing of more than £25,000 is exempt. So the FCA’s consumer credit rules can apply to sole traders and partnerships of two or three partners borrowing £25,000 or less, and do not apply to loans to limited companies or LLPs. This is a general description, not legal advice. Ask the lender whether your agreement would be regulated.

APR, flat rates and factor rates are three ways of expressing cost, and the same number means something different in each. An APR is an annual rate that includes compulsory fees and reflects the fact that your balance falls as you repay. A flat rate charges interest on the original amount for the whole term. A factor rate is a multiplier that fixes the total to repay, whatever the time it takes.

The lesson is that a “10” on one offer can cost nearly twice as much as a “10” on another. Convert every offer to the same two figures, total repayable and cost in pounds, before you compare anything else.

Ask whether the lender funds a business like yours before you ask what it charges. An application that fails on criteria costs you time and may leave a hard search on your credit file. Before you apply, ask:

• Do you lend to my sector, my legal structure and a business of my age?
• What range of amounts and terms do you offer for this product?
• Will you run a soft or a hard credit search, and at what stage?
• What security or personal guarantee do you normally take at this amount?

The documents asked for vary by lender and by amount, but most lists draw on the same set:

• Recent business bank statements.
• Your latest filed accounts, and management accounts if those are out of date.
• Proof of identity and address for the directors or owners.
• Details of existing borrowing and its repayments.
• A cash-flow forecast or plan, particularly for a newer business.
• Details of any asset being funded or offered as security.

Read an offer by working through the same questions for each lender, in writing, before you sign anything. If a lender will not answer one of these clearly, treat that as information.

1. How much will reach my account after fees are deducted?
2. What is the total amount repayable, and over how long?
3. How is the rate expressed: APR, flat rate, factor rate or a monthly rate?
4. Is the rate fixed or variable, and what makes it change?
5. What are the repayments, how often are they taken, and by what method?
6. What does it cost to repay early, and do I save any interest by doing so?
7. What security is taken, and is there a personal guarantee? Is it limited to a set amount?
8. What happens if I miss a payment: fees, default interest and the lender’s next steps?
9. Would this be a regulated credit agreement?
10. Is the offer final, or subject to further checks and valuation?

Go direct when you already know which lender suits you, and use a broker when you do not or when your case is unusual. Both routes can reach the same lenders, and neither is always cheaper.

• Going direct. You deal with the decision-maker, there is no intermediary in the price, and an existing bank already knows your account. The limit is that you see one lender’s products and criteria at a time.
• Using a broker. A broker should know which lenders fund your sector and structure, and can present the case once to several. The limits are that a broker works with a panel, not the whole market, and is usually paid by commission, which can differ between lenders.

FCA rules require a credit broker to state prominently that it is a broker and not a lender. Ask any broker how it is paid, whether it charges you a fee, and how many lenders it can approach for your kind of business.

Capzy is a credit broker, not a lender, and gets paid by the lender. You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and all funding is subject to status and lender criteria.

Check who the firm is on public registers before you send it documents or money. A genuine lender or broker is identifiable, puts its terms in writing and answers questions about cost and security.

• Companies House. Look up the company name and number shown on the firm’s website and paperwork, and check the registered details match.
• The FCA Register. Where a firm says it is authorised by the Financial Conduct Authority, search the Financial Services Register and check that the name, reference number and contact details match.
• Scheme lending. A Growth Guarantee Scheme facility is only available through a British Business Bank accredited lender. If an intermediary offers you one, check the lender it names against the Bank’s published list.

An entry on the FCA Register tells you about the firm, not about your agreement. Most lending to limited companies is not regulated consumer credit, so an authorised firm can still be offering you an unregulated loan.

The main mistake is choosing on the headline rate alone. The others come from questions not asked before signing:

• Comparing monthly payments across different terms. A longer term lowers the payment and raises the total you repay.
• Missing a fee deducted from the advance. Less reaches your account than you planned for, while you repay the full amount.
• Accepting a daily or weekly repayment untested. Set it against how and when your customers pay you.
• Applying to several lenders at once. Each full application may involve a hard search.

A loan is the wrong answer when the problem is a lack of profit, not a gap in timing. Borrowing adds a fixed cost to a business that is already losing money, and comparing lenders more carefully will not change that.

Before you borrow, check whether one of these fits better:

• Longer terms from suppliers, or shorter terms and deposits from customers.
• For a tax bill you cannot meet, a Time to Pay arrangement with HMRC.
• Asset or invoice finance in place of an unsecured loan, where the need is equipment or slow-paying customers.
• Equity or grant funding for spending that will take years to pay back.

We describe each lender using its own published terms, and we do not rate or rank them. Every lender profile lists the pages its facts came from and the date we checked them, and it keeps the lender’s own qualifiers, such as “up to” and “from”.

• Where a lender does not publish a figure, the profile says so and does not estimate one.
• Profiles carry no star ratings, scores or “best” labels.
• A profile is a description, not a recommendation, and a lender’s terms can change after the date shown.