Business loan interest rates: how UK lenders price a loan

Lenders set business loan interest rates by pricing risk. They start from their own cost of funds, add a margin for the chance that the loan is not repaid, and add their operating costs and profit. The riskier your company looks to that lender, the higher the rate it is likely to offer.

Each lender has its own pricing model, so two lenders can look at the same set of accounts and quote quite different rates. A bank funded by deposits may have a lower cost of funds than a specialist lender funded by investors, but the specialist may accept cases the bank would decline. There is no single market rate for a business loan.

Most lenders sort applications into risk bands. Your company's credit file, trading history, profitability, existing debt, security and the term requested decide which band it falls into, and each band carries a price range. Within that range, the size of the loan and the strength of the overall case usually decide where the final rate lands.

The main drivers are how likely the lender thinks it is to be repaid and how much it could recover if things go wrong. These are the factors lenders typically look at:

• Credit history: the company's credit file and, often, the directors' personal credit files. Missed payments, defaults or county court judgments usually raise the price or narrow the choice of lenders.
• Trading history: lenders set their own minimum trading period, and a longer record of filed accounts usually helps.
• Profitability and affordability: whether the company's cash flow comfortably covers the new repayments on top of existing commitments.
• Security: a loan secured on assets is usually priced lower than an unsecured loan because the lender has something to fall back on.
• Personal guarantees: a guarantee from the directors does not always lower the rate, but it is often a condition of an unsecured offer.
• Term and amount: short-term loans and smaller loans can carry a higher rate because the lender's fixed costs are spread over less interest.
• Sector and purpose: some sectors are seen as more volatile, and a clear, sensible purpose for the money strengthens any application.

If you want to see how lenders weigh these factors before applying, our guide to what UK lenders look at for unsecured business loans goes into more detail, and the difference security makes is covered in secured vs unsecured business loans.

A fixed rate stays the same for the whole term, so your repayments are predictable. A variable rate is linked to a reference rate, most often the Bank of England's Bank Rate, and your repayments can rise or fall when that reference rate changes.

Bank Rate is the rate the Bank of England charges banks and other lenders on loans to them. It is set by the Monetary Policy Committee. When it rises, lenders generally charge their own customers more for borrowing, and when it falls, they generally charge less. At the time of writing in October 2026, the Bank of England's website shows Bank Rate at 3.75%, held at that level on 17 September 2026. Rates can change at any meeting, so check the Bank of England website for the current figure.

Variable rate business loans are usually priced as Bank Rate plus a margin, for example Bank Rate plus a set percentage. The margin reflects your company's risk and is normally fixed for the term, while the Bank Rate element moves. Many specialist lenders price fixed rate loans that do not move with Bank Rate at all, although their pricing for new loans still tends to follow the wider rate environment.

A fixed rate gives certainty and makes budgeting easier. A variable rate may start lower and can fall if Bank Rate falls, but it can also rise. Revolving facilities, such as a revolving credit facility, are more often variable than term loans.

These are three different ways of expressing the cost of borrowing, and they are not directly comparable. The same loan can be described with a low-looking flat rate or a higher-looking APR, so you need to know which one you are being shown.

APR (annual percentage rate)

An APR shows the yearly cost of borrowing, including interest and most compulsory fees, calculated on the balance you still owe. Because interest is charged on a reducing balance, an APR reflects the fact that you repay part of the loan each month. It is the most complete single figure for comparing loans with different fees and terms.

Flat rate

A flat rate is charged on the original amount borrowed for every year of the term, even though you are paying the balance down. That makes a flat rate look much lower than the equivalent APR. Flat rates are common in asset finance and some short-term business lending. Our flat rate calculator shows how a flat rate turns into repayments.

Factor rate

A factor rate is a multiplier, such as 1.2, applied to the amount advanced to give the total you repay. It does not change with time, so repaying sooner does not usually reduce the cost. Factor rates are typical of merchant cash advances and some revenue-based products, and the shorter the repayment period, the higher the equivalent annual cost.

Fees can add as much to the cost of a loan as the interest itself, so they need to be included in any comparison. The fees you are likely to see include:

• Arrangement or facility fees: a one-off charge, often a percentage of the loan, sometimes deducted from the money you receive.
• Valuation and legal fees: common on secured loans. Valuation costs may still be payable if the application does not go ahead.
• Early repayment charges: some lenders charge if you settle early, because they have already committed the funds.
• Late payment and default charges: extra interest or fixed charges if a payment is missed.
• Non-utilisation or renewal fees: typical on revolving facilities and overdrafts.

A fee deducted from the advance means your company receives less than the loan amount but still repays interest on the full sum. That raises the true cost even if the headline rate is unchanged.

The fairest comparison is the total your company will repay against the cash it will actually receive, over the same term. These steps help:

1. Ask each lender for the total amount repayable, the monthly repayment and a full list of fees.
2. Check whether the rate is flat, a factor rate or charged on the reducing balance, and whether it is fixed or variable.
3. Note any fee deducted from the advance and work out the net amount your company receives.
4. Check the early repayment terms if you might settle the loan early.
5. Look beyond cost at security, personal guarantees and covenants, which affect risk rather than price.
6. Model the repayments against your cash flow forecast to check they are affordable in a quieter month.

Our business loan calculator can help you test repayments at different rates and terms before you speak to a lender.

Often, yes. Anything that reduces the lender's risk can improve the pricing or widen the choice of suitable lenders. Practical steps include filing accounts on time, keeping management accounts up to date, clearing or explaining any adverse credit, reducing reliance on expensive short-term debt and offering security where it is appropriate.

A clear purpose and a realistic amount also help. Borrowing for a specific asset, a contract or a planned project is usually easier to price than an open-ended request. Our guide on how to improve your business credit score covers the credit side in more detail.

Most lending to limited companies, LLPs and partnerships of four or more partners is unregulated. The Consumer Credit Act protections that apply to personal borrowing generally do not apply, and lenders are not always required to quote an APR or follow consumer credit rules on how costs are shown.

That puts more responsibility on the directors to read the agreement carefully, ask for the total cost in writing and take independent advice if anything is unclear. Our guide to regulated vs unregulated business finance explains what this means in practice.

Welcome Finance is a commercial finance broker, not a lender. We can check your company's eligibility in about 60 seconds without affecting its credit score, then introduce you to suitable lenders on our panel. Lenders run their own credit checks later, once you decide to apply, and every lender makes its own decision.

You get a dedicated relationship manager by phone, email and chat from your first enquiry until the lender pays out. They can help you set quotes side by side on total cost rather than headline rate. We don't charge you a fee. We are paid a commission by the lender when your finance completes, and you can ask us how much it will be. Commission can differ between lenders.