24 November 2025
Table of contents
Table of contents
Picking a takeaway on Uber Eats, choosing a film to watch on Netflix, applying for a business loan. All stressful. But the last one is usually more intense. There are lots of different types of business loans available, offering varying levels of terms and interest.
In this blog we’ll talk you through the different types of business loans, and why it’s important to apply for one which matches your needs and ability to make repayments.
A business loan is a sum of money you borrow from a lender (like a bank) to use in your business. You’ll usually need to repay the amount you borrow, plus interest, over an agreed period of time.
This will vary depending on the lender, but your application will almost always need to include:
These will help the lender understand your ability to repay the loan based on performance so far, and what you plan to do in the future.
Well, there are loads to choose from. We explain some of the more common ones in the table below.
Loan Type
Term loans
Business overdrafts
Asset finance
Invoice finance
Merchant cash advances
Commercial mortgages
Bridging loans
Trade finance
Business credit cards
How It Works
This is where you borrow a fixed amount and repay over a specific period of time (known as a fixed term). These can be secured, where you offer up something of value which the bank can use if you can’t repay, or unsecured.
Overdrafts may give you the fear from your student years, but business overdrafts can help fill short-term cash flow gaps
This allows you to purchase or use equipment and vehicles – usually without a large upfront cost. You can use the asset for as long as you make repayments, but if you default then the asset is taken back. Examples include hire purchase arrangements.
This is a short-term funding option where you borrow money using unpaid sales invoices as collateral. Basically, the customer owes you money, so this has value. The lender pays you a proportion of the money you’re owed by the client. When you repay the lender, you get the remaining balance of the invoice (minus a fee)
Another short-term funding option, this is where you receive a lump sum of cash, and then the ‘merchant’ (the payment processer) takes a percentage of the card transactions your customers make when they pay you
Used if you want to buy or refinance business premises
Short term finance to ‘bridge’ a gap until longer-term funding arrives
Helps your business buy stock or trade internationally
A financial tool to manage expenses (separate to your personal and business spending)
You’ll see all sorts of terminology floating about when you’re trying to work out if you should apply for a business loan. Secured and unsecured loans will pop up quite a bit, so we explain these in more detail.
Secured loans work like any other loan in the sense that you agree on a borrowed sum and pay that back with interest over an agreed period. Where they differ is in how finance is agreed. Secured business loans require the business owner to offer something as collateral against the loan.
It’s like when you can’t pay your taxi driver on a night out, so they take your phone to ensure you pay them the next day (this happened to a mate, not us). The type of assets you can offer up will vary, but could include things like property, equipment, unpaid invoices where you’re still expecting the client to pay you, vehicles, and inventory. Types of secured lending often includes:
Unsecured business loans work in the same way as secured loans in the sense that there is an agreed-upon amount, loan term, and interest rates payable. But without any assets offered as collateral to secure the loan.
Instead, lenders will typically ask for a ‘personal guarantee’, or another guarantor. For example, if you’re the company director you’ll declare in writing that the loan will be paid back, and if the company itself can’t pay it – you will personally. Which means your personal assets may be at risk if the company can’t repay. Unsecured loans normally include:
Neither are universally better – it all depends on your business’s specific needs.
A secured loan typically offers higher borrowing limits, lower interest rates, and longer repayment periods. So, if you’re looking for a larger amount, for as little interest as you can get – this could be the better option for you. But you do need to consider the risk of losing the asset you used as collateral if you can’t repay.
Unsecured loans are usually approved more quickly, but because they’re riskier they tend to have higher interest rates and shorter repayment terms (so there’s less time to repay). There’s also more personal risk, even if you operate as a limited company.
You can find business loans through various methods such as:
If none of them work for you, you can also look into other options like peer-to-peer lending or crowdfunding.
If you’re ever unsure – speak with your accountant for advice. Probably don’t accept a loan from your dodgy mate Stevo, though.
It’s much worse than choosing an awful film on Netflix. If you rush into getting a business loan without weighing out the pros and cons it can lead to:
We aren’t saying this to put you off business loans – they can actually be a great tool to grow your business! You just need to ensure the loan type matches your specific business needs.
The best thing you can do is compare repayment schedules, interest, and the total cost of borrowing. Look at loans that are secured and unsecured (and decide how much of a risk you want to take), and double check exactly what you’re eligible for.
Taking out a loan is always going to be a risk – but it’s up to you to make the decision whether it’s worth it.
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A creative content writer specialising across business, finance and software topics. I have a love for all things writing, and creating engaging, easy to understand content that helps everyday people!
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