Key takeaways
- Your interest rate is shown as a percentage – e.g. 10%. It reflects the amount of interest you pay on your loan each year, based on the total amount you've borrowed.
- There isn't really an 'average' business loan rate. It depends on the lender, loan type, and loan size. It is also influenced by your company, its credit history, its debts, and other similar factors.
- A fixed rate keeps your repayment the same every month, a variable rate changes based on market conditions.
- Business loans from Allica are secured by a personal guarantee from the directors who are ultimate beneficial owners (UBOs). Other loans, like commercial mortgages, are secured against the property itself.
What a business loan interest rate actually means
A business loan interest rate is the annual percentage a lender charges on the part of the loan you haven't paid back yet. It's the headline cost of borrowing, and it's the number most businesses look at first when they compare business finance options.
You'll often see the letters APR written after a rate – this stands for annual percentage rate and it's slightly different to the rate on its own. APR also includes the yearly cost of fees, so it shows a fuller view of what the loan costs you each year. If you're comparing two loans, the APR is usually the fairer place to start, as a low interest rate with high fees may, overall, cost the same as a higher rate with lower fees.
You'll also see some lenders mention representative APR. This is a way of saying "an example of a rate you could get", but it's not a guarantee. The rate your business gets could be higher, depending on how the lender assesses your application.
It's also worth thinking about whether borrowing is the right route in the first place. Our guide to debt financing vs equity financing explains the trade-offs.
Fixed rate vs variable rate: what the difference means for your repayments
With a fixed rate, your monthly repayment stays the same for the whole loan term. You know exactly what you'll pay and when, so it's easy to plan around.
A variable rate might start lower, but it can move up or down in line with market conditions and the Bank of England base rate. That makes your repayments harder to forecast, especially over a longer term.
Allica business loans use a fixed interest rate, so your repayments won't change for the duration of your loan. If you're planning a growth investment or covering a big one-off cost, that predictability can be a real help.
If you want to repay a fixed rate loan early, some lenders charge for it. We don't charge any early repayment fees for our business loans. You can read more about our fixed rate break costs to see how they work.
What business loan interest rates look like in practice
The slightly annoying truth is that there's not an average rate for business loans from all lenders. There are too many variables that go into it – like the lender and their own credit policies, the type of loan you want and how much you want to borrow, as well as factors like your business' credit history.
You'll see some lenders advertise "rates from X%". This is their representative APR, but not necessarily the rate you'll be offered.
To see what rate we could offer you, you can get a decision in principle (DIP) in a minute or so. It's the first step of our business loans application process. Getting a DIP won't affect your personal or business credit score and there's no obligation to finish your application.
At Allica, we offer fixed rates between 9.90% and 13.75%1 for eligible limited companies and limited liability partnerships (LLPs). Your exact rate depends on the loan size and your business' credit and risk profile. You'll know your potential rate and repayments before you send a full application, so there's no guesswork and no unwelcome surprises that come with "rates from X%" advertising.
What lenders look at when pricing a business loan
1. Trading history and the strength of your accounts
Lenders want to see your financial history, usually by checking your filed accounts. They're checking whether your business brings in enough income to repay the loan comfortably.
The quality and recency of your accounts matter as much as your turnover. Accounts that are out of date, or don't match your bank statements, can raise questions or lead them to ask for more evidence.
2. Debt service cover and existing commitments
Lenders work out whether you can afford the new repayments alongside everything you already owe. That includes existing loans, credit facilities, leases and all your other regular bills.
If your business has grown through several rounds of finance, laying out the full picture clearly and early tends to work in your favour. Strong cashflow compared with your existing debt is one of the best things you can show. If that's an area you want to work on, our guide on guide to improving your cashflow is a good place to start.
It also helps to understand how borrowing fits into your wider finances. Our explainer on your debt-to-equity ratio shows you how lenders may view it.
3. Business credit and personal guarantees
Lenders generally want some kind of security when they lend money. This can be straightforward – for example, a mortgage on a property uses the property as security. If the borrower can't keep up with repayments, the lender can take the property and sell it on to get their money back.
Business loans don't have such an obvious security, though. That's why they often use personal guarantees from the UBOs. This is standard practice, so you shouldn't think of it as a red flag if you're asked for a personal guarantee on a business loan.
Business loan rates frequently asked questions
What is the average business loan interest rate in the UK?
There isn't a straightforward average rate. Rates depend on the lender, the loan type, the loan size and how the lender assesses your business.
And no business is average – each is unique and will be assessed on its own merits and drawbacks. A more useful question is what rate your business is likely to be offered – if you can get an indicative rate or a decision in principle, you'll know for sure.
Do I need a personal guarantee to get a business loan?
Most lenders ask for a personal guarantee from the business owner or a director. That's standard across the market.
A personal guarantee means that if the business can't repay the loan, the guarantor is personally responsible for the outstanding balance. Read and understand the terms of any guarantee before you sign it.
How quickly can a business get a loan once approved?
It varies by lender, but some specialist lenders move much faster than traditional banks.
At Allica, we aim to give you a decision within one business day. Money typically lands in your account within two to three days of approval.
Can I repay a business loan early?
Early repayment depends on the terms of your loan. Some lenders don't allow it, some charge early repayment fees (which can eat into what you save by paying off a loan ahead of schedule), and others don't charge anything.
Allica won't charge any early repayment fees on your business loan.
Exploring a business loan with Allica
We work with limited companies and LLPs that have at least three years of filed accounts. Our fixed rate business loans start at £25,001 and go up to £150,000, with no early repayment fees.
You can check your eligibility and see an indicative rate before you commit to a full application. The application itself takes around 10 to 20 minutes. Our target is to give you a decision within one business day, and if you've given us all the information we need, the money typically reaches your account within two to three days of approval.
Need to borrow more than our business loans cover? Take a look at our growth finance2, designed for mature businesses to use flexibly and secured against a mix of assets.
If you'd like to talk through a specifics, you can find your local relationship manager and arrange a chat with them.
Ready to see what you could borrow? Explore Allica's business loans.
1 All lending is subject to status, our lending criteria, and a satisfactory credit assessment. Terms and conditions apply in England and Wales and Scotland.
2 Asset finance and growth finance services are provided by Allica Financial Services Limited trading as Allica Bank Asset Finance. Registered office: 4th/5th Floor, 15 Worship Street, London EC2A 2DT. Incorporated under the laws of England and Wales with company number 12784979. Allica Financial Services Limited is not authorised or regulated by the Prudential Regulation Authority or the Financial Conduct Authority. The asset finance and growth finance products offered by Allica Bank Asset Finance are not regulated products.
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Disclaimer: This is information – not financial advice or recommendation.
The content and materials featured in this article are for information and education only, and are not intended to take into consideration any particular recipient’s financial situation. The product details referred to are correct at the time of writing. The information does not constitute financial advice or recommendation and should not be considered as such.
