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UK small businesses have access to a wider range of finance products than at any previous point. The challenge is not finding options — it is matching the right product to the right need. This guide runs through the main types of business finance available in 2026, setting out how each works, who it suits, and where the trade-offs lie.
1. Bank term loans
A term loan from a high-street bank remains the cheapest source of business finance when you can get one. Rates typically range from 4% to 12% APR for an established limited company with a clean credit history and assets to secure against. Terms of three to seven years are common.
The drawbacks are real, though. Bank credit decisions are slow — approval can take six to twelve weeks — and the application process is document-intensive: two to three years of audited accounts, management accounts, a business plan, and often a personal guarantee or charge over business property. Younger businesses and those without hard assets often cannot pass the criteria at all. Banks have also tightened unsecured-lending appetite since 2023.
2. Bank overdrafts
Overdraft facilities are useful for covering short-term cash-flow gaps — a slow payment month, a payroll squeeze before a large invoice clears. They sit on a current account and are drawn only as needed, so you pay interest only on what you use. That flexibility makes them one of the most practical day-to-day tools a business can have.
The limitations are significant. Overdraft limits are typically modest (£5,000 to £50,000 for most SMEs). They are technically repayable on demand — a bank can withdraw the facility at its discretion. Personal guarantees are common. Arrangement fees and monthly fees stack up alongside the interest rate. And an overdraft is not the right vehicle for funding a purchase, a refurbishment, or working capital that needs to sit for more than a few months.
3. Short-term unsecured business loans
The category that has grown most since 2015 is the short-term unsecured business lender: companies including Credicorp that lend typically £1,000 to £50,000 over three to eighteen months without requiring property security or a personal guarantee.
The key advantage is speed. Decisions are made using open-banking data, business credit files, and trading history rather than a months-long due-diligence process. An application completed on a Monday can have funds transferred by Tuesday. The trade-off is cost: daily rates (often expressed as a fixed fee rather than an annual rate) are higher than bank lending. These products suit businesses with a specific, short-horizon need — a stock purchase, an equipment repair, bridging a slow month — where the cost of the finance is clearly outweighed by the opportunity or the problem it solves. See our full product details or use the comparison tool to see how the costs compare.
4. Invoice finance — factoring and discounting
Invoice finance turns your outstanding sales ledger into immediate cash. There are two main variants. In invoice factoring, a finance company buys your invoices, collects from your customers directly, and advances you 70–90% of the invoice value upfront. In invoice discounting, you retain control of your own collections and the facility remains confidential to your customers.
Invoice finance is well suited to businesses with long payment terms — construction, recruitment, professional services, and manufacturing are typical users. It scales with your turnover, which makes it a natural fit for rapidly growing companies. It does not suit businesses that invoice individuals, operate on cash-at-point-of-sale, or have concentrated customer bases where one large debtor represents most of the ledger.
5. Business credit cards
Business credit cards are universally available and operationally convenient. Used well — cleared in full each month — they cost nothing and provide a useful record of business spending. Some cards offer cashback or rewards.
Used as a borrowing tool, the APR on business credit cards is typically 20–30%, making them expensive for anything held for more than a few weeks. Credit limits are generally modest (£5,000 to £25,000), and they are not a practical vehicle for funding significant capital expenditure or working-capital gaps. Their best role in a business finance toolkit is as a day-to-day expense card, not a lender of last resort.
6. Merchant cash advances
A merchant cash advance (MCA) provides a lump sum repaid automatically as a percentage of your card-terminal receipts. Because repayments are revenue-linked — slower months mean lower repayments — they suit businesses with predictable but seasonal card-payment income: hospitality, retail, and leisure operators in particular.
The factor rates applied to MCAs (typically 1.1 to 1.5× the advance) translate to effective annual percentage rates that can be very high if the advance is repaid quickly. They are not regulated as credit products in the same way as loans, so comparison is harder. If your business runs heavily through card receipts and you need to fund something specific, an MCA is worth modelling — but model the total repayment figure carefully against the alternatives.
7. Government-backed schemes
The UK government has historically supported SME lending through schemes that reduce lender risk and extend access to credit. The best-known recent examples are the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interruption Loan Scheme (CBILS), both of which closed in 2021 but whose successor — the Recovery Loan Scheme (RLS) — remained active into 2024 and has since evolved into the Growth Guarantee Scheme. Under these programmes, the government backs a proportion of each loan, enabling participating lenders to offer lower rates or lend to businesses they would otherwise decline. Start Up Loans (from the British Business Bank) offer up to £25,000 at a fixed 6% for new businesses that have been trading for less than three years, alongside a mentoring package. British Business Bank's website maintains the current list of accredited lenders and active scheme terms.
8. Business grants
Grants are non-repayable funding and therefore the most attractive option where they are available. In practice, grant funding is targeted, competitive, and tied to specific activities. The main categories in 2026 are: R&D grants (Innovate UK, Horizon Europe successor programmes), regional growth funds (through combined authorities and the UK Shared Prosperity Fund), and green investment grants (energy efficiency, EV fleet conversion, heat pump installation). The Innovate UK Smart Grants programme runs several rounds per year. Most grants require match funding — you typically need to contribute 30–70% of project cost yourself. Grant-writing takes time and outcomes are uncertain; factor that in before committing resource to the process.
9. Equity and angel investment
For growth-stage businesses with scalable models, equity investment — giving up a share of the company in exchange for capital — can be the right vehicle when the growth opportunity is larger than debt alone can fund. Angel investors typically write cheques of £25,000 to £250,000 at early stage; venture capital funds typically start at £500,000 and above. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) provide significant tax relief to UK investors, which materially improves the terms available to qualifying companies. Equity is not appropriate for most SMEs seeking working capital — it involves giving up ownership, it takes months to close, and investors expect significant growth in return. It belongs at the top of the list only for companies actively building to scale.
How to choose
The right finance product depends on three things: what you need the money for, how quickly you need it, and what your business looks like on paper. A five-year capital investment in plant and equipment is a case for a secured term loan. A seasonal stock purchase or cash-flow bridge before a large invoice clears is a case for a short-term unsecured facility. A business that invoices other businesses on 60-day terms probably needs to look at invoice finance rather than any loan product. A new business without two years of accounts may find that a Start Up Loan or an overdraft are the only institutional options available.
Cost comparison is essential and often counterintuitive. A product with a high APR but a short term may cost less in absolute pounds than a lower-APR product held for years. Use a like-for-like cost comparison on total repayment before committing. And always read the full terms — personal guarantee requirements, early-repayment clauses, and fee structures matter as much as the headline rate.
Common questions about small business finance
What is the fastest type of business finance available to UK small businesses?
Short-term unsecured business loans from non-bank lenders are typically the fastest product available. Decisions are made using open-banking data and automated credit assessment rather than manual underwriting, and funds can reach a business account within 24 hours of a completed application in many cases. Bank loans, government-backed scheme loans, and invoice finance facilities all take longer to arrange — typically days to weeks, and sometimes months for larger or more complex facilities.
Can a UK small business get finance without a personal guarantee?
Yes, though the availability depends on the product and the lender. Many short-term unsecured business lenders — including Credicorp — do not require a personal guarantee for borrowing within their standard product limits. Bank term loans above a few thousand pounds almost always require one. Government-backed Start Up Loans are personal loans to the director rather than to the company, so they sit outside this question. It is worth asking any lender explicitly about personal guarantee requirements before applying.
What government business finance schemes are currently open in the UK?
As of mid-2026 the main active programmes include the Growth Guarantee Scheme (successor to the Recovery Loan Scheme, delivered through British Business Bank accredited lenders), Start Up Loans (up to £25,000 at 6% fixed for businesses under three years old), and various Innovate UK grant rounds for R&D projects. The British Business Bank's Finance Hub (british-business-bank.co.uk/finance-hub) maintains a current list of open schemes and accredited lenders, and is the most reliable single source for up-to-date eligibility criteria.