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Business loan limits, how much over how long?

Securing a business loan is a critical step for many companies seeking to expand, manage cashflow, or invest in new opportunities. However, the amount you can borrow and the term of the loan depend on several factors, including your business's financial health, turnover, and trading history. Let’s break it down to help you know what to expect when applying for an instant business loan.

How much can your business borrow?

The amount a business can borrow typically hinges on its annual turnover. A common rule of thumb is that lenders may offer up to 15% of your business's annual turnover. For example, if your business generates £500,000 in annual revenue, you might be able to secure an unsecured business loan of up to £75,000.

Other factors influencing loan amount:

Creditworthiness: Your business’s credit score and financial history can influence the loan amount.
Cash in bank: Lenders like to see a steady amount of cash in the bank so that they know you can make the repayments.
Existing debt: Current liabilities and outstanding loans may affect the amount you can borrow.


How long can you borrow for?

Typically, lenders will not offer a loan term longer than the period your business has been trading. This means that if your business has been operating for two years, the maximum business loan term you can usually secure is also two years. The longer you have been trading, the longer the loan term will be, up to a maximum of 6 years. There may be exceptions to this where a business has a really healthy trading history, despite the length of trading time.

Other factors influencing loan term:

Business stability: Lenders prefer to see stable and consistent business performance.
Purpose of the loan: Short-term needs (e.g. stock purchase or a VAT bill) may warrant shorter terms, while long-term investments (e.g. equipment purchase) might justify longer terms within the trading history limit.


Balancing loan amount and term

When applying for a small business loan, it’s important to balance the amount you need with a realistic term for repayment. Overestimating either can lead to financial strain and difficulties in meeting repayment schedules.

Tips for balancing loan amount and term:

Assess your needs: Clearly define what the loan will be used for and how much you realistically need.
Check the repayments: Ensure your business can comfortably meet repayment obligations within the loan term.
Speak to your accountant: Your accountant should be in a great position to advise on cashflow and affordability.

 

Before applying for a business finance, it’s important to calculate how much you need and the loan term that would make the repayments affordable to your business. By assessing your business's unique situation, you can make informed decisions about securing the right type of quick business loan to support your growth and operational needs.


Think a business loan
is just what you need? Same Day Business Loans may be able to help, have a look at how our process works and have a read of our FAQs.