How to Get a Commercial Business Loan and What Options to Choose

When you need capital for your business, a commercial business loan can give you the boost you need to invest, expand and accelerate your growth. Unlike small business loans, which are generally geared towards start-ups or smaller companies, commercial loans are often larger, more complex, and designed to meet the specific needs of established businesses.

In this article, we break down commercial business loans, the options available to UK companies and the key considerations when choosing a solution.

What are commercial business loans?

A commercial business loan is a form of financing that’s tailored to companies seeking to fund significant business activities and expansion plans. Whether it's acquiring a new office space, scaling operations or refinancing existing debts, these loans offer the flexibility and capital needed for substantial business ventures. 

For that reason, commercial business loans often come with higher borrowing limits and may require more extensive collateral or a stronger credit history to get the funds you need.

How do commercial loans work?

The process begins with an application where the business provides details about its finances, purpose for the loan and what assets it will use as collateral, if required. Lenders will request various financial documentation and business information, assessing eligibility factors like:

• Business creditworthiness
• Credit history and track record
• Cash flow and profitability
• Loan purpose
• Value of any assets offered as security

If approved for a commercial business loan, the funds are disbursed in a lump sum, and the business agrees to a repayment schedule that includes both principal and interest. Terms can vary widely, with some loans offering fixed interest rates and others variable options, and repayments are typically made monthly.

Commercial loans are usually long-term financing solutions, enabling businesses to borrow funds for 5 to 20 years (or more for mortgages and property finance). This allows you to manage large expenses while maintaining cash flow for day-to-day operations.

Where can I get a commercial business loan in the UK? 

Companies can get commercial business loans from various lending sources in the UK, from high-street banks and traditional brokers to alternative business finance providers. The choice is more about the type of commercial business loan you need and your purposes for funding, as certain lenders are more suitable than others for different types of loans, as they may specialise in property finance, asset finance or working capital solutions. 

What types of commercial business loans are available for larger funding needs?

Commercial business loans cover a range of financial products offering different terms, repayment structures and capital opportunities.

Here are the main types of business loans that support larger funding needs:

• Secured business loans: Long-term business loans backed by company assets that are used as collateral, which lowers lender risk and unlocks larger sums of capital.
• Asset and equipment finance: This type of financing has various forms of hiring and leasing agreements, designed for purchasing new equipment, machinery or vehicles, often secured against the asset being financed.
• Working capital loans: These are loans designed to help businesses cover day-to-day operational expenses, improve cash flow management, invest in new equipment, infrastructure and premises upgrades and take advantage of growth opportunities.
• Commercial mortgages: Finance specifically used to purchase or refinance commercial property, which is long-term and can cover significant amounts.
• Commercial bridging loans: As the name suggests, this product is for bridging funding gaps for large purchases, such as financing the purchase of a new property while waiting for an existing property sale to complete.

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What’s the difference between standard business loans and commercial loans?

While the terms business loan and commercial loan are often used interchangeably, there are distinct differences, such as:

• Scale and purpose – small business loans are usually for everyday business expenses, while commercial loans are for larger, long-term investments like property acquisition or major equipment purchases.
• Borrowing limits – you can usually get higher borrowing limits with commercial loans, reflecting the larger scale of business activities in focus.
• Collateral requirements – commercial loans are often secured loans, which require collateral, such as property or significant assets, due to the higher lender risk and larger amounts involved.
• Interest rates and terms – interest rates for commercial loans can vary widely based on the borrower’s creditworthiness and the loan's purpose, but larger, longer-term commercial loans often have lower interest rates than short-term business loans.

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How do commercial business loan rates work?

Interest rates for commercial business loans depend on several factors, including the type of loan, a company’s financial history and the amount of collateral offered. Generally, the larger the loan and the better the credit score, the more favourable interest rates you can get. But there are other factors at play.

When comparing loan types and lenders, you will see some with fixed or variable rates. Fixed rates remain constant throughout the loan term, providing predictability in repayments, while variable rates can change based on market conditions. Your choice depends on your risk appetite and the length of the loan term you’re after, amongst other considerations.. 

Also, take into account additional charges when comparing loan providers. Some brokers and lenders charge fees for arrangement, asset valuation (in secured loans) and things like early repayment. Check the loan terms on lender websites, as these charges will impact your total cost of borrowing.

Can I get a commercial business loan with bad credit?

Obtaining a commercial loan with bad credit can be challenging, but it's not impossible. For example, alternative finance providers often consider factors beyond just credit scores, such as business plans, cash flow, profitability and revenue potential. If your business has valuable assets, using these as collateral for a secured loan can convince lenders to provide the capital you need, as the assets offset the lower credit score and reduce their risk.

If your credit rating is causing you issues, we have a dedicated article on how to improve your credit score, to give your business a better chance of approval. 

Can you get commercial loans specifically for start-ups and small businesses?

While commercial loans are generally aimed at larger and more established companies, smaller companies and SMEs can leverage their benefits to move to the next growth stage. Start-ups and new businesses may struggle to get approved due to limited financial track records. Many lenders’ eligibility criteria require businesses to have been trading for a couple of years. So, consider dedicated start-up loans or other finance options for new businesses. 

Alternative finance lenders, like iwoca, offer broader access to new businesses and SME, looking beyond credit scores and focusing approval decisions on various other factors. So, as long as you have a solid business plan, a compelling case for funding and obvious revenue potential, you can qualify for a flexible business loan.

How to use a commercial business loan as an SME

SMEs can use commercial business loans (particularly flexible loans from digital lenders) for various purposes, such as:

• Purchasing new assets and equipment
• Boosting promotional activities, especially during seasons of high demand
• Expand operations, including upgrading premises, systems and infrastructure
• Covering key liabilities, including paying corporate tax bills, when you have gaps in cash flow
• Investing in new growth opportunities without eating into available working capital

Key considerations for choosing the right commercial business loan

The right choice will depend on what you intend to use the money for and for how long, as well as your business’s financial position.

Here are some key considerations when choosing the right commercial business loan and comparing lenders:

1. What is the loan for?
2. How long do you need the capital?
3. Do you have assets you’re prepared to use as collateral?
4. Is your cash flow consistent or does it fluctuate through the year, based on seasonality?
5. Is a fixed rate or a variable interest rate most suitable for your situation?
6. What is your risk appetite?
7. How much flexibility would you like (such as the option to overpay or repay the loan early if financial position changes)?

Consider these questions and scope out your key financing requirements before exploring different loan options. This will help you judge suitability, as you may find alternative forms of financing are a better fit for your particular circumstances.

Work out your likely repayments with a commercial business loan calculator

An online business loan calculator is a useful tool for estimating your loan repayments. By inputting the loan amount, interest rate and term length, you can get a clear picture of what your monthly payments will look like. 

This can help you find out what you can afford to borrow and repay each month, compare different loan options (by adjusting the variables to see how different rates or terms will impact your repayments), and decide whether to pursue a loan or consider alternative financing options.

Check out iwoca’s commercial business loan calculator to estimate your likely monthly repayments with different loan amounts and durations.

Finance your expansion plans with iwoca’s flexible business loans

If you’re looking for a significant cash injection to expand operations and fund key business assets, explore iwoca’s large business loans. Our loans are ideal for businesses that need fast access to sizable funds, flexible terms and manageable repayments tailored to your cash flow. 

Borrow up to £1,000,000 for periods of weeks, months or up to 5 years. Our commercial business loans are unsecured, so you don’t need to use business assets as collateral. 

Here are the main benefits to expect from iwoca loans:

• Quick and easy applications – apply fully online in minutes, and get an approval within 24 hours
• Fast access to capital – successful applicants can often get access to funds in a matter of hours
• Flexibility – enjoy affordable repayments matched to your needs, only pay interest on the amount you draw down and pay nothing for early repayment

‍Join over 150,000 companies that we’ve helped grow through flexible business finance. Find out how to apply for a loan with iwoca and use our loan calculator to work out your likely repayments.