Comparing the pros and cons of getting a business loan from traditional lenders and alternative finance providers, including how they differ in application processes, speed of funding, rates and flexibility.
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Today, there are more finance options available than ever for SMEs, meaning the prospect of comparing business loans can be daunting. Whereas once high street banks were the primary source of funding for businesses, the rise of alternative finance lenders and fintech providers has created a more flexible, tailored range of options for business owners.
Deciding the right option depends on your business needs, financial position and what you plan to do with the capital. To help you choose, we explore the lending landscape, providing a business loan comparison between high street banks and alternative lenders and outlining key suitability criteria.
The UK business finance sector has shifted significantly in recent years, with new players and different funding routes emerging, amidst the backdrop of ongoing cost-of-living issues and other macroeconomic factors.
Difficulties accessing capital from traditional banks, including stricter lending conditions and the time-consuming nature of bank loan applications, have seen a trend towards alternative sources of funding. However, with so many different types of finance available and a diverse range of lenders, it’s tricky to know which is right for you.
That’s why it’s important to research different sources of funding, comparing types of loans, lender terms and rates, and weighing up factors like flexibility and speed with the total cost of borrowing.
When seeking a business loan in the UK, and exploring different providers, you’ll have the option to get a secured or unsecured business loan and choose between a fixed-rate or variable-rate loan, which refers to the interest rates and whether they’ll change during your loan term.
Here’s a summary of the main types of business loans you can get in the UK:
There are also different debt finance options, in addition to business loans, such as invoice finance, asset finance, commercial mortgages and revenue-based finance, which can be seen as business loans, but have different repayment models to traditional loans.
Every lender has its own loan eligibility criteria, with high street banks and traditional lenders often stricter and more extensive. However, most business loan providers will judge eligibility and suitability across the following criteria:
Learn how to get a business loan from iwoca and what’s required to get funding.
High street banks have supported business growth for years and were traditionally the go-to source of capital for companies seeking to cover the costs of big purchases, fuel expansion plans and manage cash flow. However, the fintech revolution has disrupted the business finance landscape, while banks’ lending appetite has changed.
According to iwoca’s 2025 SME research, 71% of finance brokers report that mainstream banks are reducing their appetite for SME lending, leaving many small businesses seeking alternative options. Alternative business lenders attract SMEs seeking more flexibility and quick access to capital, and companies without a pristine credit history.
Let’s compare the pros and cons of business loans from high street banks vs. alternative lenders.
High street banks still attract many businesses. However, alternative lenders are breaking down barriers to funding access and offering flexibility and different types of finance that don’t require long-term commitments and strict conditions.
Let’s see how high street banks and alternative lenders compare across key factors like interest rates, loan terms and application/approval processes.
High street banks usually offer lower interest rates compared to alternative lenders, depending on the loan type and length. They can be fixed or variable, and are influenced by the Bank of England’s base rate. However, it’s important to note that interest rates alone don’t tell the whole story on the cost of lending – term length, repayment options, and fees can also play a large part.
Many alternative lenders charge higher interest rates, particularly for unsecured loans, due to the high risks lenders incur by lowering approval thresholds, but business loan interest rates vary widely across different lenders.
It’s also important to consider the business loan APR (annual percentage rate), which takes into account additional fees (which will vary from bank to bank and lender to lender) and represents the total cost of credit.
Big banks offer lengthier terms, as they prefer long-term commitments, typically ranging from 1 to 25 years. They can provide secured and unsecured loans, overdrafts, lines of credit, etc, but often require collateral from applicants.
Business loans from alternative lenders typically offer shorter terms, often from several months up to 5 years, with fewer collateral commitments. They can provide secured and unsecured business loans, plus a wide range of financing options.
Term flexibility can affect borrowing costs as much as interest rates. For example, while banks often charge for early loan repayments, alternative lenders typically offer cost-effective early repayment options, bringing down the cost of borrowing.
Getting loan approval from a high street lender can be more demanding than from an alternative lender. Bank loan applicants will need to provide exhaustive financial records, and approval can take weeks, due to robust credit checks and stringent lending criteria.
With alternative lenders, small businesses can often enjoy a streamlined loan application experience that takes just minutes, due to slick online platforms, more lenient credit checks and fewer documentation requirements. Some providers, like iwoca, guarantee approval responses within 24 hours.
Our SME Index research revealed 73% of brokers identify speed of decision-making as a major factor affecting which lenders they recommend to clients.
High street banks are still popular amongst enterprise organisations with large-scale funding requirements. So, if you want to secure long-term agreements, you may want to go the traditional route.
Business loans from big banks suit businesses with the following:
Business loans from alternative lenders are best suited to the following:
Check out our business loan comparison table below, which summarises the differences between high street bank loans and loans from alternative lenders across key decision-making factors:
While business loans are a popular form of commercial finance, largely due to their simplicity and ease of use, there are various other alternatives to consider. Here are the main business finance options to explore:
We’ve outlined the pros and cons of business loans from high street banks and alternative lenders, key considerations and suitability factors. However, deciding how to choose a business loan and which option is right for your organisation depends on your specific requirements, industry factors and the immediacy of your funding needs.
We suggest you carefully scope out your funding goals and requirements and align them with your choice of loan and provider. You’ll also need to do a thorough and realistic assessment of your finances, as this will influence your funding decisions.
If you want fast access to capital, with minimal effort and flexible loan conditions, tailored to your needs, look no further. Iwoca offers dedicated small business loans to fuel growth, manage cash flow effectively and be more agile.
We’ve helped over 150,000 small businesses since 2012. You can borrow up to £1 million to give your business the injection of capital it needs to grow and thrive.
Here are just a few of the great benefits of using iwoca:
Find out how to apply for a business loan from iwoca or use our loan calculator to see your likely repayments.
Comparing the pros and cons of getting a business loan from traditional lenders and alternative finance providers, including how they differ in application processes, speed of funding, rates and flexibility.
