Refinancing a business loan means replacing your existing loan with a new one on better terms. The new lender settles the old debt directly, and you carry on with the new agreement. Most businesses refinance to lower their interest rate, reduce monthly repayments, consolidate several facilities into one, or release capital tied up in an asset.

With the Bank of England base rate now at 3.75%, down from a 2023 peak of 5.25%, business refinancing has become a more active question for UK SMEs. A loan taken in 2023 may sit at a very different rate to what’s available today.

The maths only works if the saving beats the cost of switching. Early repayment charges, arrangement fees, and any new security requirements all eat into the gain. Late in the term of an existing loan, or where your trading has weakened, refinancing can leave you worse off.

Most business owners only think about refinancing when something prompts it. Usually it’s a rate change, a balloon payment coming up, or a sense that the loan no longer fits the business. If that’s where you are, the next few sections should help.

When does refinancing a business loan become the right option?

The majority of businesses refinance for one of five reasons. Some come down to changes in the market, others to changes in the business, and a few to the way the original loan was structured. The scenarios below should help you work out where your situation fits.

Rates have dropped since you borrowed

If you took out a loan when the Bank Rate was at its 5.25% peak in 2023, you’re likely sitting on a higher rate than what lenders are offering today. Because lenders price off Bank Rate, and Bank Rate has come down to 3.75%, the gap between your current cost of borrowing and what’s available in the market may be wider than you think. Over the remaining term of a larger loan, even a reduction of one or two percentage points can translate into thousands of pounds.

Your business is stronger than it was

The loan you qualified for two years ago reflects the business you were then, not the business you are now. If you’ve grown your turnover, built up a longer trading history, or strengthened your balance sheet, the range of lenders willing to back you has widened considerably. That usually means better rates, longer terms, and more flexibility on covenants. The loan you’ve been paying off probably hasn’t kept pace with the progress you’ve made.

You’re managing several facilities at once

Businesses often end up with a patchwork of borrowing built up over time, perhaps a loan from one lender, an asset finance agreement from another, and a merchant cash advance taken on for a short-term need that’s since become routine. Each facility comes with its own payment date, its own rate, and its own administration. Consolidating everything into a single new loan can reduce the total monthly cost and simplify your cash flow. Done well, it also gives you a clearer picture of what your business owes.

There’s a balloon payment coming

Some loans, particularly older asset finance agreements, are structured so that a large lump sum falls due at the end of the term. If that payment is on the horizon and paying it outright would put pressure on the business, refinancing the outstanding balance into a new facility spreads the cost over a longer period. The earlier you start the conversation, ideally several months before the payment is due, the more options you’ll have.

The loan no longer fits the business

The facility that was sensible when you took it out can drift out of alignment with the business over time. You might have taken an unsecured business loan to buy a piece of machinery because asset finance wasn’t available to you then, but now it is, and the asset itself could be securing a cheaper rate. Or the term might be too short, leaving monthly repayments that squeeze cash flow harder than they need to. Refinancing into a product that better matches the size, term, and security profile of what you’re funding can ease that pressure without changing how much you’ve borrowed.

How to refinance a business loan, step by step

The mechanics of a refinance are the same as any business loan application. The work that affects your outcome happens before you submit it.

1. Review your existing loan agreement

Start by pulling out the original paperwork and working out where you stand. You’re looking for your outstanding balance, how much time is left on the term, and your current rate.You also want to know the size of any early repayment charge (ERC) if you settle before the term ends. The ERC is the one most borrowers underestimate. Lenders calculate it in different ways. Some apply a flat percentage of the remaining balance, others use a sliding scale that reduces the closer you get to the end of the term, and a few have no ERC at all. The figure you want at the end of this step is the total settlement amount, including the ERC, because that’s the number your new loan will need to cover.

2. Decide what you want the refinance to achieve

It sounds obvious, but being clear on the goal shapes every decision that follows. If your priority is lowering the monthly payment, a longer term with a slightly lower rate will usually get you there. If your priority is reducing the total cost of the borrowing, a shorter term with a lower rate works better, even if the monthly payment doesn’t move much. If you’re consolidating several facilities into one, the focus shifts to the blended cost and the simplification of having a single monthly payment date. Without that clarity going in, it’s easy to end up comparing offers on the wrong basis.

3. Get your paperwork together

Lenders ask for broadly the same documents regardless of which one you approach. Most refinance applications need:

• Three to six months of business bank statements
• Your most recent filed accounts, plus up-to-date management accounts if your filed accounts are more than a few months old
• A debt schedule listing the balance, rate, and monthly payment on any existing facilities
• Proof of ID and basic company information

Having all of this ready before you start applying is the single biggest factor in how quickly the process moves. The lenders we work with consistently move faster on cases that arrive with the paperwork already in order.

4. Compare options across the market

You can approach lenders directly, one at a time, or use a broker to compare options across a panel of lenders in a single conversation. The direct route gives you full control, but each lender may run a credit search as part of their application process, and several searches in a short period can affect your score. It also takes longer, because you’re starting from scratch with each lender’s process.

The broker route works differently. At Greenwood Capital, for example, we run soft searches across our panel of more than 100 lenders to shortlist the ones most likely to approve your case, and only submit a formal application to the lender you decide to proceed with. That keeps the credit footprint small and means you’re comparing real, eligibility-checked options rather than headline rates that may not be available to you. For a refinance specifically, where you’re already weighing up the cost of switching against the saving, having a clear picture of what’s on offer matters more than usual.

5. Submit the application

Once you’ve chosen a lender, the application is submitted along with the paperwork from step three. Timelines vary by product. An unsecured loan can be approved in a day or two and funded within the week. Asset finance moves quickly too, and a deal can be approved and funded within the same day when all parties move at pace.

Property-secured facilities like commercial mortgages and bridging take longer because the lender has to complete valuations and legal work, and four to six weeks is a realistic window for those. During this stage, the lender runs underwriting checks, including a soft credit search. A hard credit search is only carried out at the point you accept their offer.

6. Drawdown and settle the existing loan

Once the loan is approved and the agreement is signed, the funds are released. In most cases the new lender settles your existing loan directly rather than transferring the money to you, which removes the risk of any timing gap between the old facility closing and the new one starting. Your previous repayment schedule ends, your new one begins, and any security held against the original loan is either released or transferred across to the new agreement.

Alternatives to refinancing your business loan

Refinancing isn’t always the best route, even when there’s a clear cost saving on paper. If the early repayment charge is high, the remaining term is short, or you only need a small amount of extra cash, a different product can often do the job with less friction. The table below shows the alternatives we see come up most often, and where each one tends to fit better than refinancing.

Alternative	Best for	What can help
Top-up on existing loan	Extra funds when your current loan is performing well and you want to avoid an early repayment	Unsecured business loans
Second loan alongside	Borrowing more without disturbing a competitive rate on the existing facility	Unsecured business loans
Asset refinance	Releasing capital tied up in vehicles, machinery or equipment you already own	Asset finance
Invoice finance	Cash flow pressure from unpaid invoices rather than the cost of the existing loan	Invoice finance
Merchant cash advance	Short-term, revenue-linked funding for businesses that take a lot of card payments	Merchant cash advance

Refinancing tends to win when the priority is a lower rate on the same borrowing. Where the priority is extra cash or easier cash flow, one of the alternatives above usually gets you there with less effort.

Most business owners have a default when their tax bill arrives. They pay it in full, clear the obligation with HMRC, and move on to the next thing. It’s the responsible-feeling option, and for some businesses it’s the right one. For plenty of others, it quietly takes a chunk of working capital out of the business at the worst possible time.

A £40,000 corporation tax bill leaves your account in a single transfer. The cash gap it creates can last another two or three months. During that time, payroll feels tighter, supplier payments get watched more closely, and decisions about hiring or stock get pushed back. Then the next VAT quarter lands, or next year’s corporation tax bill comes round, and the cycle starts again.

You don’t have to pay a tax bill in one go. A corporation tax payment plan or a tax loan lets you spread the cost over six to twelve months. The lender pays HMRC on your behalf, you repay in fixed monthly instalments, and the cash stays in the business. For a fee, you keep the working capital free to do something more useful.

This guide covers when paying your tax bill in full is the right call, when spreading it makes more sense, what tax funding costs, and how to decide between the options.

How does tax funding work?

Tax funding is a short-term business loan that covers your VAT, corporation tax, or PAYE bill, repaid in fixed monthly instalments over six to twelve months. The lender pays HMRC directly on your behalf. You then repay the lender, with interest, while keeping the cash in the business.

It’s a different product to an HMRC payment plan, which we cover later in this guide. With tax funding, you stay fully compliant with HMRC from day one. The bill is treated as paid the moment the lender settles it, and there’s no late payment interest, no flag on your tax record, and no Time to Pay arrangement to negotiate.

Loans typically range from £5,000 to £500,000, depending on the size of the bill and the lender. Most are unsecured loans and approved within a few days. For larger amounts (usually over £150,000), some lenders ask for a personal guarantee.

For example: a £40,000 corporation tax bill funded over 12 months at around 9% APR works out at roughly £3,500 a month, with total interest of about £2,000 across the full term. The lender pays HMRC the £40,000 on your behalf the day the bill is due. Your business keeps the £40,000 of working capital available for the next year, and repays the loan in twelve fixed instalments.

Tax funding is most commonly used for VAT (due quarterly) and corporation tax (due nine months and one day after your year-end), but PAYE bills can be funded the same way. Some lenders will also reimburse a tax bill you’ve already paid, as long as it cleared your account in the last 30 to 45 days.

Tip: If you’d like to see what spreading a tax bill could look like for your business, our business loan calculator can help you estimate monthly repayments.

The hidden cost of paying a tax bill in full

Paying a tax bill in full has a cost most owners never put a number on. It’s what the cash would have done over the next few months if it had stayed in the business.

Take the £40,000 corporation tax bill from earlier. Once it’s paid, the £40,000 is gone, but the business still has the same payroll, the same supplier payments, and the same overheads to cover. Cash that would have funded a new hire, a stock order, or simply a comfortable buffer is now sitting with HMRC. Most owners feel this for the next eight to twelve weeks. Payroll gets watched more closely, supplier payments slow down, and the conversations about hiring or new equipment quietly get pushed to next quarter.

If that £40,000 would have funded something with a return – a new salesperson billing £8,000 a month in net new revenue, a stock order that turns over twice in the quarter, or a discount for paying a key supplier 30 days early – the lost return is what the bill really costs you. Tax funding at 9% over twelve months costs around £2,000 in interest. If the cash would have generated more than £2,000 of value over the same period, paying in full is the more expensive option.

The other thing that gets missed is the cycle. VAT bills land every three months. Corporation tax lands every twelve. PAYE every month. For a lot of SMEs, by the time working capital has rebuilt after one bill, the next is already on the way. The recovery never quite finishes.

Businesses that fund their VAT every quarter aren’t necessarily struggling. Often they’ve worked out that keeping the cash in the business and paying a fee for the privilege is more profitable than the alternative.

Read next: What is VAT finance and how does it work?

When does paying in full make sense, and when doesn’t it?

Paying your tax bill in full is the right call when the cash isn’t doing anything more useful elsewhere. If you’re sitting on healthy reserves, the bill is small relative to your monthly turnover, and there’s no growth investment, hire, or stock order queued up that the cash would unlock, the simplest option is usually the best one. There’s nothing to repay, no interest to factor in, and no application to make.

Tax funding is the better option when the cash has somewhere better to be. A business turning over £200,000 a month with a £40,000 corporation tax bill is paying around 9% in interest to keep the cash for twelve months. If that £40,000 funds a hire, a stock cycle, or a contract that returns more than the financing cost, spreading the bill leaves the business better off. The bigger the bill is relative to monthly turnover, and the more clearly the cash has a job to do, the stronger the case becomes.

HMRC’s Time to Pay arrangement is the third option, and it’s the one most owners think of first.

Time to Pay lets you spread an unpaid tax bill over a period agreed with HMRC, usually six to twelve months. It keeps you out of formal recovery action, but it’s not free. HMRC charges late payment interest at 7.75% (from 9 January 2026, set at the Bank of England base rate plus 4%) for the entire period the bill is outstanding. The arrangement is recorded against your account, which can affect future credit decisions, and it’s negotiated case by case rather than approved on standard terms.

Tax funding sits between paying in full and Time to Pay. The bill is treated as paid the moment the lender settles it with HMRC, so there’s no late payment interest, no penalty risk, and nothing flagged on your tax record. Rates from commercial lenders typically sit around 6% to 12% APR, often below HMRC’s 7.75%, and approval is faster than negotiating a Time to Pay.

Comparing your options

Option	What it costs	How quickly you can arrange it	Effect on your HMRC record	Best for
Pay in full	Nothing on top of the bill	Immediate	None	Surplus cash, small bill relative to turnover, no better use for the money
Tax funding	~6% to 12% APR over 6 to 12 months	A few days	None – bill treated as paid	Cash has a clear job to do, regular VAT or corp tax cycles, growth plans in motion
HMRC Time to Pay	7.75% late payment interest, plus penalty risk if not arranged before deadline	1 to 4 weeks	Recorded against your account	Genuine short-term inability to pay, no commercial finance available
Business overdraft	Variable rates, often 8% to 15%	Already in place, or 1 to 2 weeks to set up	None	Short bridge of a few weeks, not a full bill

Which option fits depends on the size of the bill, how the cash would be used, and what your overall funding picture looks like. For one-off bills with surplus cash, paying in full is fine. For recurring VAT or corporation tax cycles where the cash has a clear job to do, tax funding usually works out cheaper than the alternatives. Time to Pay is best treated as a fallback rather than a first move, because of the cost and the record it leaves.

How we approach tax funding at Greenwood

Greenwood Capital is a commercial finance broker. We work with a panel of specialist tax funding lenders and match each client to the right option based on the size of the bill, the trading position of the business, and what’s needed by when.

Most tax funding deals we arrange are unsecured. For loans under £150,000, lenders typically don’t require a personal guarantee. Above that, terms vary by lender and case. Approval usually takes a few days from receiving the documents, and lenders can lock in a deal up to 30 days before the deadline for VAT and 45 days before for corporation tax. Booking earlier in the cycle gives you more lender options and avoids the rush around month-end.

To put a proposal together, we usually need your latest filed accounts, three months of business bank statements, management information dated within the last three months (P&L and balance sheet), and proof of the tax liability, such as a VAT return or corporation tax computation. If a Time to Pay arrangement is already in place and being kept to, that doesn’t rule out tax funding, but we’ll need the full details.

If you’ve already paid a corporation tax or VAT bill in the last 30 to 45 days, some lenders will reimburse it. The cash comes back into the business and you repay the lender over the agreed term. It’s an option that’s easy to miss, and a useful one if you’ve recently paid a bill that’s left cashflow tighter than expected.

Working capital is the money your business has available to cover its day-to-day running costs, from payroll and supplier payments to stock and rent. In accounting terms, it’s the difference between your current assets (what you own in the short term) and your current liabilities (what you owe in the short term).

Most business owners have a rough sense of whether cash is tight or comfortable. Working capital puts a number on that feeling. It tells you how much breathing room you have, and whether you could handle a late payment, a quiet month, or an unexpected cost without it becoming a problem.

This guide explains how working capital works, how to calculate yours, what the numbers tell you, and what your options are if things are tighter than they should be.

How do you calculate working capital?

Working capital = current assets – current liabilities.

Current assets are things your business either holds as cash or expects to convert to cash within the next 12 months. That includes money in the bank, unpaid invoices from customers (accounts receivable), stock, and any prepayments you’ve made.

Current liabilities are the bills you need to settle in the same period. Supplier invoices (accounts payable), VAT, PAYE, short-term loan repayments, and any other amounts due within the year.

Subtract one from the other and you’ve got your working capital figure.

For example: Say you run a £2m-turnover electrical contractor. Your balance sheet might look something like this:

Current assets		Current liabilities
Cash in bank	£85,000	Supplier invoices	£95,000
Unpaid customer invoices	£140,000	VAT due next quarter	£35,000
Stock (cable, switchgear, fittings)	£25,000	PAYE and pensions	£20,000
Total	£250,000	Total	£150,000

Working capital: £250,000 – £150,000 = £100,000

That £100,000 is this business’s breathing room – the cash available to cover wages, materials, and overheads while waiting for customers to pay. Whether it’s enough depends on how quickly those payments land. A contractor waiting 60 days on invoices from a main contractor needs more headroom than a business collecting payment on completion.

Our business loan calculator can help you estimate repayments if you’re considering a working capital loan.

What’s a good working capital ratio?

The working capital ratio – also called the current ratio – measures how comfortably your business can cover its short-term liabilities with its short-term assets. You calculate it by dividing current assets by current liabilities.

Working capital ratio = current assets ÷ current liabilities.

Using the example above: £250,000 ÷ £150,000 = 1.67.

A ratio of 1.0 means you have just enough to cover what you owe. Below 1.0 and you’re technically unable to meet your short-term obligations from current assets alone. Most lenders and accountants consider anything between 1.2 and 2.0 to be healthy.

What counts as “good” depends on your sector and how your cash moves. Construction and manufacturing businesses typically sit higher – around 1.7 to 1.85 – because they’re funding materials and labour long before they get paid.

Retailers often operate just above 1.0 because stock turns over quickly and customers pay on the spot. The same ratio can mean very different things depending on your payment terms, your overheads, and how predictable your income is.

It’s also worth remembering that your ratio is only as real as the assets behind it. If a big chunk of your current assets is tied up in invoices that are 60 or 90 days from being paid, that working capital exists on your balance sheet but not in your bank account.

Lenders look at this closely. The working capital ratio is one of the first things an underwriter checks – but they’re reading it alongside your bank statements, your debtor book, and your monthly outgoings.

A healthy ratio with poor cash flow behind it won’t get you far. If your ratio is below where it needs to be, that’s not necessarily a problem. It just means the right type of working capital finance matters more. Invoice finance, short-term working capital loans, or a restructured facility can close the gap quickly.

Warning signs your working capital is under pressure

A working capital ratio can look healthy on paper while the business is already feeling the strain. These are the signs we’d encourage you to watch for:

• Checking your bank balance before approving routine payments
• Supplier invoices sitting unpaid past their due dates – not because of disputes, but because the cash isn’t there yet
• Relying on your overdraft most months rather than occasionally
• Payroll feeling tight even though revenue is steady
• Turning down work or delaying a hire because you can’t fund the upfront costs

If your debtor days are creeping up, or a key customer has started paying later, your working capital position is weakening – even if the ratio still looks acceptable. A ratio that’s been falling for two or three quarters shouldn’t be ignored.

How can you improve your working capital?

There are two sides to this: operational changes that free up cash already in the business, and funding that bridges the gap while you sort the underlying issue. Often it’s a combination of both.

Tighten up what you can control

Invoice faster. The gap between completing work and sending the invoice is dead time. Invoice on completion, or at minimum weekly (not at month-end).

Chase what you’re owed. Follow up on day one when an invoice goes overdue. If a customer consistently pays at 60 days on 30-day terms, that needs a direct conversation, not another statement.

Renegotiate supplier terms. If you’re paying suppliers in 14 days but your customers are paying you in 60, your working capital is funding that entire gap. Even moving to 30-day terms frees up cash without changing anything else about how the business operates.

Match the right funding to the problem

The problem	What can help
Cash is tied up in unpaid invoices and you’re waiting 30, 60, or 90 days for customers to pay	Invoice finance advances up to 90% of the invoice value upfront, so you’re not waiting on your customers to cover your costs
You need to fund materials, wages, or project costs before a contract pays out	An unsecured business loan gives you a lump sum to cover the gap, with no collateral required
Cash flow dips between projects or at certain times of year	A merchant cash advance repays as a percentage of your daily card sales, so repayments flex with your income
You need equipment to deliver work but can’t afford to buy it outright	Hire purchase or asset finance spreads the cost over time, with the asset itself serving as security
You want a larger facility backed by property or business assets	A secured business loan offers higher amounts and lower rates in exchange for collateral

Spring is usually when businesses start making plans. The new tax year has kicked in, the dust has settled, and there’s a bit more space to think about what’s ahead.

Maybe it’s a hire you’ve been sitting on. A second van. A site you’ve had your eye on for a while. Maybe it’s something bigger, like acquiring another business. Or maybe you don’t know what it is yet. But the feeling that it’s time to do something has started to creep in.

We’ve laid out the most common ways businesses grow in Q2 and the funding that tends to suit each one. We’ve also covered the mistakes we see when things move too quickly, and what lenders are looking for when you apply.

Buying new equipment, vehicles & machinery

If you’re buying something with a resale value, asset finance or hire purchase will almost always cost less per month than an unsecured loan. The asset itself acts as security, which brings the rate down and speeds up the process. With hire purchase you own the equipment at the end of the term, and with a finance lease you don’t, but the monthly payments are typically lower.

A lot of businesses apply for an unsecured loan to buy something that could have been financed against the asset itself. Most people don’t realise there’s a cheaper option until someone points it out. The difference in monthly cost can be significant. If the funding is for a vehicle, a machine, or a piece of kit, check asset finance before going straight to a loan.

New premises

The thing most people don’t budget for isn’t the building itself. It’s the fit-out, the legal fees, deposits, and the first few months of trading before the new location is generating revenue. A commercial mortgage covers the property, but the rest needs a separate facility alongside it.

When a property needs to be secured quickly, bridging finance can hold the deal while the mortgage completes. Terms run from 6 to 18 months and the balance is repaid at the end, usually through a sale or a refinance. Rates are higher than a mortgage, so only go down this route if there’s a clear plan for how the bridge gets repaid.

Hiring and working capital

If you’re invoicing for the work, invoice finance lets you release cash from those invoices before your customer pays. The facility scales with your turnover, which makes it a natural fit when you’re taking on more work. If the need isn’t tied to invoices, an unsecured business loan gives you a lump sum with fixed repayments. Either way, be realistic about the gap between the cost and the revenue.

Hiring someone in April and expecting them to pay for themselves by June is optimistic. Funding three months of salary before you expect a return is realistic. Our guide on how business loans work covers the full process.

Fit-outs and builds

Builds run over. It happens more often than not, and when the funding has been sized for the original timeline with no contingency, that’s where things get difficult. Development finance releases money in stages as the build progresses, so you’re not paying interest on the full amount from day one. But make sure the facility has enough headroom to absorb a delay. Our construction finance guide goes into more detail.

Systems and technology

Investing in new software, automation or internal tools can free up a lot of time and capacity, but there’s nothing physical for a lender to secure against. That means these investments are usually funded through unsecured business loans, which carry higher rates and tend to be for smaller amounts than secured lending. Before you take on the repayment, ask yourself whether the investment changes what the business can do or just how comfortable it feels to run it. Those are two very different things.

Smoothing cash flow

If your business takes a lot of card payments, a merchant cash advance can smooth out the gaps between busy and quiet periods. Repayments are taken as a percentage of your daily card turnover, so they flex with your revenue. But the effective cost is higher than most other forms of borrowing.

If cash flow is the problem, check whether invoice finance or a short-term loan would do the same job for less. Our guide on how merchant cash advances work explains the numbers.

SME funding options at a glance

What you’re doing	What usually fits
Buying vehicles, machinery or equipment	Asset finance or hire purchase
Taking on new premises or buying a building	Commercial mortgage
Securing a property quickly before a longer-term deal completes	Bridging finance
Hiring staff or covering costs while revenue catches up	Unsecured business loan or invoice finance
Funding a build or major refurbishment	Development finance
Investing in systems, software or technology	Unsecured business loan
Smoothing cash flow for a card-heavy business	Merchant cash advance

The mistakes that come up most often

The growth decisions that go wrong usually aren’t bad decisions. They’re reasonable ones where the funding was structured too tightly around the best-case timeline.

A refurbishment runs six weeks over schedule, but the loan was sized for the original plan. A second site takes longer to break even than expected, and there’s no cash left to absorb the slower months. Someone hires two people at once when one would have been enough to start with, and the payroll commitment becomes a problem when a quieter month comes along.

All of these are avoidable if the funding has enough room in it. If you’re borrowing £80,000, we’d recommend asking whether £90,000 with a small buffer would be the more sensible move. The cost of that extra headroom is almost always less than scrambling to fill a gap three months in.

What the current climate means if you’re thinking about growth

If you’re making decisions about spending or borrowing over the next few months though, here are some key considerations.

Bank Rate	3.75%, held since December. Lenders competing for SME business.
Spring Statement	Dividend tax up 2pp, income tax thresholds frozen until 2031.
Hiring	SME employment up 4.9% year-on-year. National Living Wage rises to £12.71 in April.
Confidence	Recovering. 86% of business leaders are confident about their own prospects.

If you’re thinking about borrowing

Bank Rate is at 3.75%. While there’s been a lot of talk about further cuts, the picture is less clear than it was at the start of the year. The Middle East conflict has pushed energy prices up and that’s made the Bank of England more cautious.

It might come down later this year, it might not. Either way, lenders are competing for SME business in a way they weren’t eighteen months ago, and that competition is showing up in the terms they’re offering.

If you’re thinking about hiring

Employing people costs more than it did a year ago, and there are a few reasons for that.

• Employer NI is higher
• The National Living Wage rises to £12.71
• SME wages grew 8.8% year-on-year in February, with competition for talent pushing pay up across the board
• The employment law changes from the Q1 playbook are now live, including day-one rights to statutory sick pay and parental leave

None of that has stopped businesses from hiring. SME employment was up 4.9% year-on-year in February. If you’ve been running a person short and it’s starting to hold the business back, you’re probably already feeling the cost of not hiring.

If you’re thinking about how to pay for it

The Spring Statement didn’t bring anything dramatic, but a couple of things changed in April that are easy to miss:

• Dividend tax went up 2 percentage points
• Business Asset Disposal Relief rises to 18%
• Income tax thresholds stay frozen until 2031

If your profits grow this year, you’ll keep less of that growth than you would have last year. Before you commit to any big spending, we’d recommend getting your accountant to run the numbers on what you’ve got available after tax.

What commercial lenders look for in 2026

The specifics vary depending on the product, but across most types of business funding, lenders are looking at the same core things:

What they’re assessing	What that means for you
Cash flow	Clean bank statements showing regular income and a stable balance. Bounced payments or a messy account are red flags.
Trading history	Most lenders want at least 6 to 12 months. The longer and more consistent, the better.
Purpose of funding	“I need £60,000 to buy an excavator for a confirmed contract” gets a faster decision than “working capital.”
Existing debt	How much you already owe relative to your income. Too much and lenders see you as over-leveraged.
Credit profile	A poor score doesn’t automatically mean a decline, but it changes which lenders and products are realistic. Our guide on getting approved with bad credit goes into more detail.

The businesses that get the best rates and the quickest decisions tend to be the ones that turn up prepared. If you’ve got a cash flow forecast in place, that’s a good chunk of what a lender wants to see.

Quick wins to prepare for business funding in Q2

Q1 was about doing the boring jobs that stop the year turning into a scramble. Q2 is about making sure you’re ready to move if the right opportunity comes along. None of these take more than a couple of hours, but each one puts you in a stronger position when it matters.

1. Revisit your cash flow forecast with growth in mind

• Time: About 30 minutes if you already have one from Q1, an hour or so if you’re starting fresh.

If you’ve already got a cash flow forecast, this is about testing what happens when you add a new cost. If you haven’t built one yet, our Q1 playbook walks through how to set one up from scratch. What does your cash flow look like if you bring someone on in May? What if you take on a second van? Where does it get tight, and how long does the gap last?

Take your existing forecast and add the cost of the growth you’re considering, in the week it would hit. Map out when the revenue from that investment realistically starts coming through. Look at the gap between the two and ask yourself how you’d cover it.

You’re done when you can see clearly how long the gap between cost and revenue is likely to be, and you know whether you’d need funding to bridge it.

2. Get your funding paperwork together

• Time: About an hour to pull together, then keep it updated.

Most of what lenders ask for is the same regardless of the product. Having it ready means you can move in days rather than weeks when something comes up.

Pull together your last three to six months of business bank statements. Make sure your management accounts or filed accounts are up to date. Write a short summary of what you’d use the funding for and how much you’d need. If you’ve got existing borrowing, note the balance, rate and monthly repayment for each facility.

You’re done when everything a lender is likely to ask for is in one place, and you could send it over tomorrow if you needed to.

3. Have a conversation with a broker

• Time: 10 to 15 minutes for an initial call.

If you’re a small business thinking about funding this year, even loosely, an early conversation with a commercial finance broker means we already understand your business when the time comes.

We’re not starting from scratch, asking for documents for the first time or trying to work out your situation under pressure. We can move quickly because the groundwork is already done.

Give the Greenwood Capital team a call or drop us an email with a short overview of where you’re at and where you think you might need small business finance. If you’ve got existing facilities, mention those too so we can see the full picture.

4. Check your pricing

• Time: About 45 minutes to review.

Costs have gone up across the board this year, from employer NIC and wages to energy and materials. If your prices haven’t moved to reflect that, your margins are shrinking every month. Growth funded on thin margins is risky, because there’s no room for anything to go wrong.

Look at your gross margin on your main products or services and compare it to this time last year. Work out how much your costs have actually increased since April 2025. If there’s a gap, decide whether a price increase is realistic and how you’d communicate it to customers.

You’re done when you know what your margins look like right now, not what they were six months ago, and you’ve made a decision on pricing.

Construction finance is a range of funding products designed to help businesses in the construction sector manage cash flow. It includes invoice finance, asset finance, business loans, bridging finance and more, each suited to different situations. Which one fits depends on the size of your business, how you get paid and what you need the funding for.

Construction businesses tend to carry costs long before payment arrives. Materials, labour, plant hire and subcontractor fees all go out early, while stage payments and invoice settlements can take weeks or months to come through. That pressure on working capital is one of the main reasons construction has had the highest insolvency rate of any UK industry for four years running.

Below we explain how construction financing works, the main types of construction lending available, what it typically costs and how to choose the right option for your business.

What is construction finance?

Construction finance is any type of business funding designed to help construction companies manage the gap between spending money and getting paid. It’s not a single product. It covers several different types of funding, from releasing cash tied up in unpaid invoices to financing equipment or borrowing against property.

The reason construction has its own category of business finance comes down to how payment works in the sector. Most contractors and subcontractors are paid through applications for payment, where a quantity surveyor or contract administrator certifies what’s been completed before the payment clock even starts. If there’s a dispute over scope or the paperwork isn’t right, that clock resets.

Most contracts also include retention clauses that hold back 3 to 5% of each payment until practical completion or the end of a defects liability period. That money can be tied up for months. On margins of 2 to 4%, retention alone can take a real chunk out of available working capital.

Construction finance products are structured around these payment patterns rather than treating the business like it has predictable monthly income.

Types of construction finance

There are several types of construction financing available in the UK. Which one fits depends on what’s causing the cash flow pressure and how your business gets paid.

Invoice and contract finance

Invoice finance lets you release cash from unpaid invoices or applications for payment before your customer pays. A lender advances a percentage of the value, typically 80 to 90%, and you receive the rest once the invoice is settled, minus a small fee.

For construction businesses on 30, 60 or 90-day payment terms, this is often the most natural fit because the funding scales with your workload. The more you invoice, the more you can draw on.

One thing to be aware of is that some lenders will advance against certified applications for payment while others will only fund raised invoices, so it’s important to check what stage of the payment cycle the provider is willing to work from. We go into more detail in our guide on invoice financing.

Asset finance

Asset finance lets you spread the cost of vehicles, plant, machinery or specialist equipment over time rather than paying upfront. The asset itself acts as security, which means approval is often more accessible than unsecured borrowing, even if your credit history isn’t clean.

For construction businesses, this is one of the more straightforward types of funding to arrange because lenders can clearly see what they’re financing and what it’s worth. It doesn’t work when you need general working capital rather than a specific piece of equipment. If you’re deciding between leasing and buying outright, our guide on hire purchase vs leasing breaks down the differences.

Business loans

A business loan gives you a lump sum to use as you need. Unsecured loans don’t require collateral but come with higher rates and lower limits. Secured building loans let you borrow more at a lower rate by offering property or another high-value asset as collateral.

In construction, a business loan tends to make most sense when the funding need doesn’t fit neatly into invoice finance or asset finance. If it does fit one of those, you’ll usually get better terms because the lender has clearer security.

A general-purpose commercial construction loan is typically the right option for costs that aren’t tied to an invoice or an asset, like taking on extra staff ahead of a busy period or bridging a gap between contracts. Our guide on how business loans work goes into the application process and what lenders look for.

Bridging finance

Bridging finance is short-term borrowing secured against property, usually repaid in full at the end of the term rather than in monthly instalments. Terms are typically 6 to 18 months and rates are higher than longer-term lending.

In construction, bridging is commonly used to buy a site quickly, fund a refurbishment, or move on an opportunity that won’t wait for a traditional mortgage application. It’s a useful tool when speed matters, but it’s not cheap and it shouldn’t be used to paper over a deeper cash flow problem.

If you don’t have a clear route to repaying the balance, whether through a sale, a refinance, or funds from another transaction, it can create more pressure than it solves. We explain more in our guide on bridging loans.

Development finance

Development finance funds the construction of a property from the ground up, or a major conversion or refurbishment. Unlike a standard construction loan, the money is released in stages as the build progresses, with a surveyor signing off each phase before the next tranche is drawn down. It’s designed for developers rather than contractors, but if your business takes on its own development projects, it may be relevant.

VAT and tax finance

A large VAT or corporation tax bill at the wrong time can put serious pressure on a construction business, especially if you’re already waiting on payments. VAT and tax finance lets you spread the cost over several months rather than paying it in one lump, which can make the difference between a comfortable quarter and a difficult one.

How to choose the right option

Over half of construction SMEs say it’s become harder to access finance in the last year, according to Bibby Financial Services’ 2025 SME Confidence Tracker.

A common reason is applying for the wrong product in the wrong place. A construction business that goes to their high street bank for a general-purpose loan when invoice finance would be a better fit is likely to get worse terms, a slower decision, or a decline they didn’t need.

Your situation	Best starting point
Waiting on invoices or applications for payment	Invoice and contract finance
Need to buy or replace vehicles, plant or equipment	Asset finance
Need working capital that isn’t tied to an invoice or asset	Business loan
Need to move quickly on a property purchase	Bridging finance
Taking on a ground-up build or major refurbishment	Development finance
VAT or tax bill due at a difficult time	VAT and tax finance

It’s common for construction businesses to have more than one funding need at the same time. A combination of products, each matched to a different pressure, will usually work out better than trying to solve everything with a single facility.

Different lenders also specialise in different types of construction financing. A lender that’s strong on invoice finance may not offer asset finance, and a high street bank that does business loans may not understand how applications for payment work in construction.

At Greenwood Capital, we work across the full range of construction lending options and can help you find the right combination based on how your business operates.

How to apply for construction finance

What you need to provide depends on the product. A construction loan secured against property will involve more paperwork and due diligence than an invoice finance facility or an asset finance agreement. But across most types of construction financing, lenders will want to see some combination of the following:

• Three to six months of business bank statements
• Your latest filed accounts or management accounts
• Details of current contracts, invoices or work pipeline
• Information about what the funding is for and how much you need
• Details of any assets being used as security

For development finance and commercial construction loans, you’ll also need a project plan, planning permission and a full cost breakdown. For asset finance, lenders will want a quote or specification for the equipment.

Before you apply

Construction is classified as a higher-risk sector by most lenders, which means applications are often scrutinised more closely than in other industries. That makes preparation more important.

Clean bank statements make a big difference. If your account shows regular income, a stable balance and no bounced payments, it tells the lender your business can handle repayments on top of its existing costs. If the last few months have been messy, it can be worth waiting until you have two or three cleaner months behind you before submitting an application.

Be specific about what the funding is for. An application that says “I need £60,000 to buy an excavator for a confirmed contract” gives the lender something concrete to work with. One that says “working capital” does not.

If your credit history has issues, that doesn’t necessarily rule you out, but it changes which lenders and products are realistic. Our guide on how to improve your chances of approval with bad credit goes into detail on what lenders weigh up and what you can do to strengthen your position.

Getting approved for business finance with bad credit comes down to more than your score. Lenders weigh cash flow, trading history, the purpose of the funding, and whether past credit issues are recent or resolved. Get these right and you’re in a strong position. Get them wrong and you risk burning an application you didn’t need to lose.

If you’ve been turned down by your bank, or you’re expecting to be, you’re not alone. Maybe there’s a CCJ on your file from a few years ago, or a director with personal credit issues that keeps following the business into every application. You need funding, but you’re not sure whether anyone will say yes or whether applying will make things worse. This guide is for you.

It covers what we’ve learned from arranging over £100 million in business finance for UK SMEs, many of them with imperfect credit files. If you’re still working out whether funding is realistic, start with our guide on getting a business loan with bad credit. This one picks up from there.

What lenders weigh up when your credit is poor

Most people assume their credit score is the main reason they’ll be approved or declined. In practice, it’s one input among several, and for many specialist lenders it’s not even the most important one. The question they’re trying to answer is simple: can this business afford to repay? Your credit file is part of that picture, but your bank statements, your trading history, what the money is for, and how the application is presented can all carry more weight.

Cash flow and bank statements

Your bank statements carry serious weight in any business finance application. Lenders will ask for three to six months of them, and they go through them line by line. They want to see money coming in regularly, a stable balance, no returned direct debits, and enough breathing room to cover repayments on top of your normal running costs.

What catches people out is the detail. A business turning over £30,000 a month with steady income is a very different prospect to one doing the same amount in two or three large spikes. An underwriter will also notice things like frequent use of an unarranged overdraft, payments bouncing, or HMRC debts being collected by direct debit. Even when the headline numbers look fine, those details can change the conversation.

Trading history

Most lenders want to see at least six to twelve months of trading, and longer gives them more to work with. But the trajectory matters as much as the length. Twelve months of steady or growing revenue will carry a business further in an application than three years of decline.

One thing we see regularly is newer businesses assuming they have “bad credit” when what they have is very little credit history at all. Those are two different problems. A thin file means the lender doesn’t have much to go on. A damaged file, with CCJs, defaults, or missed payments, means there’s evidence of past problems. Some lenders won’t touch either. Others specialise in one or the other. Getting that distinction right before you apply saves time and avoids wasting hard credit searches on lenders whose criteria you were never going to meet.

What the funding is for

Lenders care about what the money is for, and most applicants underestimate how much it matters. Some purposes are far easier to fund than others.

An application to buy a specific piece of equipment or fulfil a confirmed contract is a straightforward conversation for an underwriter. The money goes in, it generates or protects revenue, and there’s a clear path to repayment. An application that just says “working capital” is much harder to approve, because the lender has no way of knowing whether the money will solve a problem or delay one.

Be specific when you apply. “I need £40,000 to buy a CNC machine that will let us take on a contract worth £120,000” is a fundable request. “I need some working capital” gives the lender very little to work with.

Security and personal guarantees

If you can offer security against the borrowing, whether that’s commercial property, equipment, or vehicles, it gives the lender something to fall back on if things go wrong. That reduces their risk, which means they can be more flexible on credit history. It’s one of the reasons asset finance and secured business loans are often easier to access than unsecured lending when your credit file has issues.

Most lenders will also ask whether you’re willing to provide a personal guarantee. A lot of applicants agree to this without fully thinking it through, because it feels like the only way to get the deal done. But a personal guarantee means you’re personally liable if the business can’t repay.

Your home, your savings, your personal finances are on the line. If you’re not confident the business can comfortably keep up with the repayments over the full term, it’s better to look at a smaller amount, a different product, or to hold off until the position is stronger.

How recent your credit issues are

The age of your credit issues matters as much as the issues themselves when you’re applying for business finance. A satisfied CCJ from several years ago with clean conduct since is a completely different situation to an unpaid one from six months ago. Lenders care about the timing, whether the issue has been resolved, and what your financial behaviour has looked like since.

Generally, the older and more settled the issue, the more options open up. A satisfied CCJ with a few years of clean conduct behind it won’t stop most specialist lenders from considering your application. A recent or outstanding one narrows the field considerably, and you’ll typically need strong bank statements, a clear purpose for the funding, and some form of security to get an approval across the line. Every lender draws the line in a slightly different place, which is one of the reasons working with a broker who knows the criteria across the market can save you from applying in the wrong place.

IVAs are treated more seriously. Some lenders won’t consider a business loan application at all while an IVA is active, though others will look at the broader picture if the arrangement is nearing completion and the business is trading well. If you’re in an IVA and need funding, we’d recommend getting specialist advice before you apply rather than testing the water yourself and picking up hard searches in the process.

If your credit issues are recent and unresolved, it may be worth considering types of finance that rely less on your credit history. We cover those in the next section.

How to strengthen a bad credit business finance application

Most bad credit business loan applications that get declined aren’t declined because of the credit file alone. They’re declined because the rest of the application didn’t do enough to offset it. The difference between an approval and a decline is often down to preparation, and most of it can be done in the weeks before you apply.

Clean up your credit file before a lender sees it

Both your personal and business credit reports can contain mistakes, from old addresses and debts that were paid off but never marked as satisfied, to accounts you don’t recognise. Any of these can drag your score down for no reason.

Check your personal file through Experian or Equifax (both offer free access), and your business credit report through Experian’s My Business Profile. The headline score is useful, but the full report is where problems hide. It’s not uncommon for a director’s previous address to still be linked to an old default that was paid off years ago. The score looks fine on a free app, but the full file tells a different story. If something is wrong, dispute it with the agency before you apply. It takes time to correct, so don’t leave it until the last minute.

Get your bank statements in shape early

Lenders will ask for three to six months of business bank statements, and they read them line by line. If you know you’re going to apply for funding in the next few months, start treating your bank account like it’s already under review.

That means avoiding unnecessary overdraft use, making sure direct debits don’t bounce, and keeping the balance in a healthy position where you can. If you’ve had a rough patch recently, even two or three clean months can shift how a lender reads your file. Often the difference between a no and a yes is a few weeks of tidier banking.

Be upfront about your credit history

If you have a CCJ, an IVA, or a history of missed payments, the lender is going to find out. Trying to hide it wastes everyone’s time and damages trust with the underwriter.

Address it head-on. A short, factual explanation of what happened and what’s changed since is far more effective than leaving the lender to draw their own conclusions. Something like: “The CCJ was registered in 2022 following a dispute with a supplier. It was satisfied in full in 2023 and we’ve had no further issues since.” That’s the kind of context that turns a red flag into a conversation.

Avoid applying to too many lenders at once

Every full application triggers a hard credit search, and each one shows up on your file. If a lender sees four or five recent searches from other lenders, it looks like you’ve been turned down repeatedly. That makes an already difficult application harder.

Look for lenders or brokers who offer a soft credit check at the eligibility stage, so you can see where you stand without leaving a mark. At Greenwood Capital, initial enquiries don’t affect your credit score, which means you can explore your options before committing to a full application.

Match the finance type to your situation

Not every type of business finance weighs credit history the same way. If your score is the main barrier, applying for an unsecured high street loan is likely to end in a decline. But products like asset finance, invoice finance, and merchant cash advances are structured differently, and for some businesses they offer a more realistic route to funding. We go into each of these in the next section.

Types of business finance that are easier to access with bad credit

If your credit history is the main thing holding back your application, not all business finance is assessed the same way. Some products are structured so the lender’s primary security comes from somewhere other than your credit file. Which one fits best depends on your business, what assets you have, and how your income comes in.

The table below gives a quick comparison. We go into more detail on each one underneath.

Product	How the lender is secured	Best suited for	Credit history importance
Asset finance / hire purchase	The equipment itself acts as security	Businesses buying or upgrading vehicles, machinery, or specialist equipment	Lower – the asset value matters more
Invoice finance	Your unpaid invoices act as security	B2B businesses with reliable customers on 30, 60, or 90-day payment terms	Lower – your customers’ creditworthiness matters more
Merchant cash advance	Repaid from future card sales	Retail, hospitality, and businesses with consistent card payment volumes	Lower – your card transaction history matters more
Secured business loan	A charge over property or high-value assets	Businesses that own property or valuable assets and need to borrow a larger amount	Lower – the asset value and equity matter more

Asset finance and hire purchase

With asset finance and hire purchase, the equipment you’re funding acts as security for the agreement. Because the lender can recover the asset if repayments aren’t maintained, they’re less reliant on your credit history when making a decision. If the asset generates or supports revenue, the application is even more straightforward.

This option is tied to a specific asset, so it won’t work if what you need is general working capital. For a fuller explanation, see our guide to what asset finance is and how it works.

Invoice finance

Invoice finance is based on the strength of your customers rather than your own credit history. The lender advances a percentage of your unpaid invoices (typically 80% to 90%) and the invoices themselves act as security. If you’re trading well but your credit file doesn’t reflect that, invoice finance lets the quality of your customer base do the work.

It’s not an option for businesses that deal mainly with consumers or take payment upfront, since there are no invoices to finance against. See our guide on what invoice financing is and how it works for a more detailed breakdown.

Merchant cash advances

A merchant cash advance gives you a lump sum upfront, which you repay as a fixed percentage of your daily or weekly card takings. Because the funding is tied to your future card sales rather than your credit history, approval is often more accessible for businesses with bad credit.

The trade-off is cost. MCAs use a factor rate rather than an interest rate, and the total repayment amount is fixed from the outset. They tend to be more expensive than other options, so it’s important to compare the total cost against what you’d pay elsewhere before you commit. If your income comes mainly through bank transfers or cash rather than card payments, this product won’t be available to you.

Secured business loans

A secured business loan lets you borrow against property or high-value equipment your business already owns. The lender takes a charge over the asset, which reduces their exposure and makes them more willing to approve applications where the credit history is poor. For businesses with bad credit that need to borrow larger amounts, this is often the most realistic route.

If your business can’t keep up with repayments, the lender can repossess the asset. Lower rates and higher borrowing limits come with that risk attached. The process also tends to take longer than unsecured products because the lender will need a valuation before they can make an offer.

If there’s any doubt about whether the business can sustain the repayments over the full term, an unsecured option or a different product is a safer path, even if the rate is higher.

The Growth Guarantee Scheme (GGS) is a UK government-backed lending programme that gives accredited lenders a 70% guarantee on business finance facilities of up to £2 million. It’s run by the British Business Bank, covers everything from term loans to asset finance, and is open to businesses with a turnover of up to £45 million. The borrower remains fully liable for the debt. The guarantee sits with the lender, not you.

Despite supporting nearly £3 billion in lending since July 2024, awareness among business owners is still surprisingly low. Many confuse the scheme with the old Bounce Back Loans. Others assume it’s a government grant. It’s neither. But for businesses that qualify, the GGS can improve the rates and terms you’re offered on a loan you were going to take out anyway.

This guide covers how the scheme works, who’s eligible, what types of finance are available, and what to expect when you apply.

How does the Growth Guarantee Scheme work?

When you apply for business finance through a GGS-accredited lender, the process looks almost identical to any other commercial loan application. You submit your financials, the lender assesses your business, and they make a decision based on their usual criteria.

The difference is what’s happening on the lender’s side. The government, through the British Business Bank, guarantees 70% of the outstanding balance if the borrower defaults. That guarantee gives lenders more confidence to approve applications they might otherwise decline, or to offer better rates than they would without the government-backed guarantee in place.

The guarantee protects the lender, not you. As the borrower, you’re still 100% responsible for repaying the full amount. If you default, the lender will pursue recovery from you first, using their normal process. The government guarantee only kicks in after that, covering 70% of whatever the lender couldn’t recover. You don’t get a discounted loan. You don’t get partial forgiveness. You get a better chance of being approved, and potentially better terms, because the lender is carrying less risk.

For example: Say you run a construction firm and need £250,000 to purchase equipment. You approach a lender, and on a standard commercial basis, they’re not comfortable with the exposure. Maybe your trading history is short, or your sector makes them cautious.

Under the Growth Guarantee Scheme, that same lender knows the government covers 70% of their downside if things go wrong. That might be enough to turn a no into a yes, or to bring the interest rate down from, say, 12% to 9%. You still owe £250,000 either way. But the terms you’re offered could look very different.

That’s the real value of the scheme. It doesn’t change what you owe. It changes what lenders are willing to offer you.

• Note: Lenders are required to offer you a standard commercial facility if they can match or beat the GGS-backed terms without the guarantee. So if your business is strong enough to get a good deal on its own, you’ll get that deal. The GGS exists for the gap between “good business, but the numbers make us nervous” and an outright no.

Who’s eligible for the Growth Guarantee Scheme?

The core criteria are straightforward. Your business needs to:

• Have a turnover of up to £45 million (on a group basis, if part of a group)

• Be carrying out trading activity in the UK

• Generate more than 50% of its income from trading (charities and further education colleges are exempt from this)

• Have a viable business proposition in the lender’s view

• Not be classed as a “business in difficulty”

• Not exceed government subsidy limits

The £45 million turnover ceiling is higher than most people expect. This isn’t a scheme limited to sole traders and micro-enterprises. Businesses turning over £10 million, £20 million, even £40 million still qualify.

If you’ve previously borrowed under the Bounce Back Loan Scheme, CBILS, CLBILS, or the Recovery Loan Scheme, you can still apply. But your previous borrowing may reduce the maximum amount available to you under the GGS.

What does “viable business proposition” mean?

There’s no universal definition. Each lender makes this call based on their own credit criteria. One lender might decline you while another approves you for the same amount. This is why getting turned down once doesn’t mean the scheme isn’t available to you.

The British Business Bank accredits over 70 lenders under the GGS, and their risk appetites vary significantly. If your first application doesn’t go through, we recommend working with a business finance broker like Greenwood Capital who can match you with lenders more likely to say yes.

What does “business in difficulty” mean?

You’ll be considered a business in difficulty if you’re in formal insolvency proceedings: administration, liquidation, a company voluntary arrangement, or an individual voluntary arrangement. Receiverships and restructuring plans under Part 26A of the Companies Act don’t count. If your business is struggling but hasn’t entered a formal process, you may still be eligible.

The subsidy limit that most overlook

The GGS counts as a government subsidy. Not the loan itself, but the benefit you receive from the guarantee. The exact calculation is technical, but broadly it reflects the financial advantage the guarantee provides to you as the borrower.

There’s a cap on total subsidy any business can receive over a rolling three-year period. If you’ve received other government-backed support (grants, previous guaranteed loans, other subsidised programmes), that eats into your allowance. Most small businesses won’t come close to the limit, but if you’ve stacked multiple schemes recently, check before you apply. Your lender will ask you to confirm this during the application.

What can you use the Growth Guarantee Scheme for?

The short answer is any legitimate business purpose. The British Business Bank doesn’t restrict how the funds are used. Working capital, equipment, expansion, hiring, refinancing existing debt, bridging a cashflow gap while you wait on a large invoice. It’s broad by design.

What shapes the detail is the type of finance you apply for. The GGS supports five products, though not every lender offers all of them.

Term loans

A fixed lump sum repaid over an agreed period, typically between three months and six years under the GGS. This is the most common route for businesses that need a specific amount for a defined purpose: buying equipment, funding a fit-out, hiring ahead of a busy period, or consolidating more expensive debt.

Minimum facility size is £25,001. Maximum is £2 million per business group. Interest rates vary between lenders and will depend on your business profile, the amount, and the term length.

Because the GGS reduces the lender’s risk, Growth Guarantee Scheme interest rates can come in lower than a standard commercial loan for the same borrower. How much lower depends on the lender and your circumstances, but the scheme’s terms require that the benefit of the guarantee is passed on to you rather than absorbed by the lender.

Our business loan calculator can help you estimate repayments at different rates.

Asset finance

If the funding is for a specific asset (vehicles, machinery, equipment), asset finance lets you spread the cost over time while the asset itself serves as security. Under the GGS, the minimum facility is £1,000 and terms can run up to six years.

This is popular in construction, manufacturing, transport, and logistics. The GGS guarantee can make the difference for businesses that are viable but don’t have the balance sheet history some lenders want to see before financing a large asset.

Invoice finance

If your cashflow problem is timing rather than revenue, invoice finance releases money tied up in unpaid customer invoices. A provider advances up to 90% of the invoice value upfront, then collects from your customer on normal terms. Under the GGS, invoice finance facilities start from £1,000 with terms of up to three years.

This works well for businesses in recruitment, professional services, or any sector where you’re regularly waiting 30, 60, or 90 days for payment while covering costs now.

Overdrafts

A flexible facility attached to your business bank account. You draw what you need, repay when funds come in, and only pay interest on what you’ve used. Under the GGS, business overdrafts are available from £25,001 with terms up to three years.

Overdrafts suit businesses that experience regular cashflow fluctuation rather than a one-off funding need. Seasonal businesses are a good example. The downside is that they’re repayable on demand and can be reviewed or reduced at short notice, so they’re not a substitute for longer-term finance.

Asset-based lending

This is a broader facility secured against a combination of your business assets: stock, equipment, property, receivables. It’s typically used by larger SMEs that need a more flexible funding structure than a single product can offer. Minimum facility is £1,000 under the GGS, with terms up to three years.

How to apply for the Growth Guarantee Scheme

Most people think there’s a separate GGS application – there isn’t. You don’t go to the British Business Bank’s website and fill in a form. You apply for business finance with an accredited lender in the normal way, and the lender decides whether to use the Growth Guarantee Scheme to back your facility. In practice, that means the process looks like this.

You choose an accredited lender, or work with a broker who can match you with one. You apply for the type of finance you need. The lender runs their standard credit and fraud checks, reviews your financials, and assesses your business. If they can offer you a commercial facility on equal or better terms without the guarantee, they will. If they can’t, and you meet the GGS criteria, they may use the scheme to support your application.

You can mention that you’d like to be considered for GGS-backed finance when you apply, but ultimately the decision sits with the lender. The extra paperwork is minimal. In most cases, it’s a subsidy declaration confirming you haven’t exceeded the government’s rolling three-year limit, plus the standard documentation the lender would ask for anyway.

What lenders typically ask for

The exact requirements vary, but most lenders will want to see the following:

• Recent management accounts or filed accounts
• A business plan or summary of what the funding is for
• Bank statements (usually three to six months)
• Details of existing debts and any previous government-backed borrowing
• Information on directors and significant shareholders
• A signed subsidy declaration

If you’re applying for asset finance, you’ll also need details of the asset you’re purchasing. For invoice finance, lenders will want to see your debtor book.

What makes a stronger application

Lenders under the GGS still apply their normal commercial judgement. The guarantee makes them more willing to lend, but it doesn’t override their risk criteria. A few things can meaningfully improve your chances.

Clean, up-to-date financials matter more than people think. If your management accounts are six months old or your books are messy, some lenders won’t look past that. Getting your numbers current before you apply is one of the simplest things you can do, and one of the most overlooked.

Be specific about what the funding is for. “Working capital” is technically a valid answer, but “we need £150,000 to hire three engineers ahead of a confirmed contract starting in April” gives the lender something concrete to assess. The more clearly you can connect the borrowing to a business outcome, the easier you make the lender’s decision.

If you’ve been declined elsewhere, say so and explain what’s changed or why a different product might be a better fit. Lenders expect this. It’s not a black mark. Over 70 lenders are accredited under the GGS, and they have very different appetites for risk, sector, and deal size. A no from one is not a no from all.

If you’re not sure where to start, that’s what we’re here for. At Greenwood Capital, we work with a panel of 100+ lenders, including GGS-accredited providers. Rather than approaching lenders one by one, you can apply through us and we’ll match you with the ones most likely to approve your application, often within days.

Recent changes to the Growth Guarantee Scheme

The scheme has changed a lot since it launched in July 2024. If you looked into it last year and ruled it out, the picture is different in 2026.

Extended to March 2030

The GGS was originally set to close on 31 March 2026. The 2025 Spending Review extended it through to 31 March 2030, with the government increasing the British Business Bank’s funding by two-thirds. That means the scheme isn’t going anywhere soon. If you’re planning an investment for later this year or next, the Growth Guarantee Scheme will still be available.

£500 million in additional capacity for tariff-affected businesses

In April 2025, the Chancellor announced an extra £500 million in lending capacity specifically aimed at smaller businesses dealing with cashflow pressure from changes to global tariff rates. This doesn’t change the scheme’s terms or eligibility criteria. It just means more money is available through GGS-accredited lenders for businesses that need support managing the impact of trade disruption. If rising import costs or supply chain shifts have squeezed your margins, this applies to you.

The Green GGS pilot

The British Business Bank is running a pilot variant of the scheme designed to support businesses investing in green assets. Things like solar panels, electric vehicles, heat pumps, or other equipment that supports the transition to a low-carbon economy.

The problem it’s solving is that lenders are often cautious about financing green assets because the second-hand market for them is still immature. If a borrower defaults, the lender isn’t confident they can recover the asset’s value. The Green GGS addresses this by providing an enhanced guarantee that sets a floor on the lender’s potential losses.

It’s still a pilot at this stage, running with a single lender and an initial portfolio of £30 million. But it signals where the scheme is heading. If your business is considering an investment in sustainable equipment, ask your lender whether Green GGS-backed finance is available.

A business overdraft you’ve been dipping into for months. A merchant cash advance that made sense at the time. An equipment lease and a business credit card you put stock purchases on last year. Four different lenders, four different repayment schedules, four different interest rates. You’re keeping up, but half your week feels like it’s spent managing debt instead of managing your business.

A debt consolidation loan lets you combine multiple business debts into one. You take out a new loan large enough to cover everything you owe, use it to pay off your existing lenders, and repay the new loan with a single monthly payment at a single interest rate. The total debt stays the same, but instead of four or five payments going to different lenders each month, there’s one.

For business owners, that simplicity matters more than it sounds. Cash flow is easier to forecast when there’s one fixed payment leaving the account on the same date every month. If the new loan comes with a lower rate than the average across your existing debts, you’ll reduce your monthly outgoings too, freeing up cash you can put back into the business.

But consolidation isn’t always the right move. A longer loan term can mean paying more interest overall, even at a lower rate. And if any of your existing agreements carry early repayment charges, the cost of exiting them can eat into the savings. It comes down to the numbers.

What is a business debt consolidation loan?

A debt consolidation loan is a loan you use to pay off multiple existing business debts. Instead of owing money to several different lenders, you owe it to one. You make one repayment each month, at one interest rate, over a fixed term.

It doesn’t reduce the amount you owe. If your business had £40,000 of debt before, you still have £40,000 of debt after. What changes is the structure around it. You go from four lenders to one, from several payment dates scattered across the month to a single one, and depending on the rate you’re offered, you could end up paying less interest over the life of the loan.

The easiest way to see how this plays out is with an example.

Debt	Balance	APR	Monthly payment
Business overdraft	£8,000	15.9%	£280
Merchant cash advance	£12,000	29.9%	£520
Finance lease	£14,000	9.5%	£340
Business credit card	£6,000	23.9%	£180
Total	£40,000		£1,320

That’s four different payments leaving your business account at four different times during the month, each at a different rate. The merchant cash advance alone is costing you nearly 30% interest.

After consolidation:

You take out a debt consolidation loan for £40,000 at 8.9% APR over four years. Your single monthly repayment is £993. You’re paying £327 less each month, you’ve cut your highest interest rate from 29.9% to 8.9%, and you have one payment to track instead of four.

Over the full term, you’d pay around £7,690 in interest on the consolidation loan. Kept separately, the combined interest across those four facilities, particularly the merchant cash advance and the credit card, would total closer to £15,000. That’s a saving of roughly £7,500, before accounting for the time reclaimed from managing multiple lenders.

That’s the scenario where consolidation clearly works in your favour. But the numbers don’t always line up this neatly. A lot depends on the rate you’re offered, the term you choose, and whether any of your existing agreements carry early exit fees.

How does business debt consolidation work, step by step?

The process is simple, but there are a few things worth doing before you rush into an application.

1. Work out exactly what your business owes

Go through every active borrowing agreement. Overdrafts, business loans, credit cards, merchant cash advances, asset finance – anything with a balance. Write down the outstanding amount, interest rate, and monthly repayment for each one. If you’re not sure what’s still live, check your business credit report through Experian.

• Tip: Be thorough. It sounds obvious, but business owners frequently miss a facility they opened years ago and barely use. One overlooked debt can change the maths entirely.

2. Check for early exit charges

Some business finance agreements charge a penalty if you settle early. This is most common with fixed-term loans, equipment leases, and merchant cash advances. The latter often calculate exit costs as a percentage of the remaining factor amount rather than a flat fee, which can be substantial. Check the terms on each agreement and factor those costs into your decision before you assume consolidation saves money.

3. Compare what you’re paying now with what a consolidation loan would cost

Add up your current monthly repayments and the total interest you’d pay across all your debts if you kept them as they are. Then model what a consolidation loan would cost over the same period. The monthly figure might look appealing, but a five-year loan on £40,000 at 11% costs considerably more in total than a three-year loan at 9.5%.

• Rule of thumb: If you can’t get a consolidation rate at least 3-5 percentage points below your average blended rate across existing debts, the maths rarely favours consolidation unless admin simplicity is the primary goal.

4. Shop around and check your eligibility

Some lenders offer a soft credit check that lets you see whether you’d be approved – and at roughly what rate – without affecting your credit score. Business lending options are considerably more varied than personal loans, and rates can differ significantly between lenders for the same application. Speaking to a broker who can search across multiple lenders at once usually surfaces better terms than going direct.

5. Apply for the loan

Once you’ve found a deal that works, submit a full application. The lender will run a hard credit check at this stage, and for larger amounts they’ll usually want to see business accounts and bank statements. If approved, funds are typically in your account within a few days.

6. Pay off your existing debts

This is the step business owners sometimes skip, and it’s the most important one. Use the loan to clear every debt you planned to consolidate. Close revolving credit facilities you no longer need. Don’t leave a balance sitting on an old business credit card.

7. Set up your new repayment

Arrange a direct debit so you never miss a payment. From here, you have one monthly amount going to one lender, and a clear date when your business will be debt-free.

When debt consolidation is a good idea (and when it isn’t)

Debt consolidation works well in some situations and makes things worse in others. Before you apply, it helps to be honest about which one your business is in.

Signs consolidation could work for you

• You’re juggling repayments across multiple lenders and losing track. If you’ve missed a payment not because the business can’t afford it but because you didn’t realise it was due, consolidation solves that problem immediately.
• You can get a lower interest rate than what you’re currently paying. If you’re paying 25% on a merchant cash advance and you can consolidate at 9%, the savings are obvious. Just make sure you compare the total cost over the full term, not just the monthly figure.
• You want to free up monthly cash flow. If your combined repayments are squeezing the business each month, consolidation at a lower rate or over a longer term can create breathing room. A longer term usually means more interest overall.
• You’ve got HMRC debt as well as commercial borrowing. Some lenders will settle HMRC liabilities directly as part of a consolidation loan, which can be simpler than arranging a separate Time to Pay. Check with your lender or broker whether this is an option before you apply

Signs it might not be the right move

• You’d be stretching the repayment term significantly. A lower monthly payment sounds appealing, but spreading £40,000 over seven years instead of three could mean paying far more in total interest. The monthly relief isn’t worth it if the long-term cost doubles.
• Your existing debts carry heavy early exit fees. Some business loans, equipment leases, and merchant cash advances charge a penalty for settling early. If those fees add up to several thousand pounds, they can wipe out any savings the new loan would give you.
• Your business is already struggling to meet its obligations. A consolidation loan rearranges your debt but doesn’t reduce it. If revenue doesn’t comfortably cover your outgoings, free advice from Business Debtline or an insolvency practitioner is a better starting point than more borrowing.
• You’re considering securing the loan against property but aren’t confident the business can sustain the repayments. A secured loan puts that asset at risk. If there’s any doubt about keeping up payments over the full term, an unsecured option or a different approach altogether is safer.

Business debt consolidation vs other options

A consolidation loan isn’t the only way to get your business debt under control. Depending on how much you owe, what type of borrowing it is, and your business’s financial position, one of these alternatives might be a better fit.

Option	How it works	Typical cost	Risk level	Best suited for
Asset refinancing	Release cash tied up in equipment, vehicles, or machinery your business already owns, and use it to pay down other debts.	Interest rates vary by asset type and condition. Typically lower than unsecured borrowing.	Medium. The asset is used as security. If you default, the lender can repossess it.	Businesses that own high-value assets outright and want to consolidate debt without taking on unsecured borrowing at higher rates.
Invoice finance	Borrow against unpaid invoices to free up cash flow, then use that cash to reduce or clear other debts.	Fees typically include a service charge (1% to 3% of turnover) plus a discount charge on funds drawn.	Low to medium. Your invoices are the security, not your property or equipment.	Businesses with strong receivables but cash flow pressure from slow-paying customers alongside existing debt.
Refinancing existing loans	Replace one or more existing business loans with a new one on better terms. The original loans are settled and you repay the new one instead.	Depends on the rate you’re offered. Arrangement fees of 1% to 3% are common.	Low to medium. You’re swapping like for like, but early exit fees on existing loans can add up.	Businesses with improved credit or trading history who can now access better rates than when they first borrowed.
Company voluntary arrangement (CVA)	A formal, legally binding agreement to repay a portion of your business debt over three to five years. The rest is written off.	Fees are built into the arrangement. You’ll typically repay a percentage of what you owe.	High. It’s recorded publicly, can affect supplier relationships, and comes with strict conditions on spending and borrowing.	Businesses with debts they can’t realistically repay in full who want to avoid liquidation.

If your business has strong assets or a healthy invoice book, refinancing or invoice finance can free up cash to clear expensive borrowing without taking on a new consolidated loan at all. These options work best when the problem is cash flow timing rather than total debt level.

If you can get a consolidation loan at a rate lower than what you’re currently paying across your existing debts and you’re comfortable with the repayment term, that’s usually the most straightforward path. One payment, a fixed end date, and a clear picture of what the business owes.

A CVA is a last resort. It keeps the business trading, but the consequences are serious and long-lasting. It’s not something to enter into without advice from an insolvency practitioner.

A business overdraft is a credit facility on your business current account that lets you dip beyond your available balance, up to a limit agreed with your bank. You only pay interest on what you borrow, and once you repay it, the funds are available to use again.

Most major UK banks offer overdraft limits from £500 to £50,000, although the amount you’re offered depends on your trading history and financial position. Rates vary too, and they’re often higher than most business loans, especially if you use the overdraft regularly rather than occasionally.

The biggest selling points are speed and flexibility. Once the facility is in place, you can draw on it as needed without making a fresh application. The trade-off is cost and control, because your bank can review, reduce, or withdraw the facility with limited notice.

In this guide, we break down the advantages and disadvantages of a business overdraft, how costs are calculated, and when another type of finance may be a better fit.

What is a business overdraft?

A business overdraft is a borrowing facility attached to your business current account. It lets you spend more than your available balance, up to a limit set by your bank. You can use it when you need to, repay it when funds come in, and use it again.

That flexibility is what makes it different from a business loan. With a loan, you receive a lump sum and repay it over a fixed term. With an overdraft, the balance can go up and down, and the full limit becomes available again once you clear what you owe.

There are two types to be aware of:

• Arranged overdraft: agreed with your bank in advance, with a set limit, interest rate, and review period.

• Unarranged overdraft: when your account goes below zero without an agreement in place, or you go beyond your agreed limit. Fees and interest are usually much higher, and most banks will treat it as a breach of your account terms.

An overdraft is tied to your current account. That means you can only have one with your existing bank. If you want a better rate elsewhere, you’d usually need to move your whole business banking relationship.

Advantages of a business overdraft

The main advantages of a business overdraft are flexibility, speed, and the fact it can be cost effective when it’s used for short, occasional gaps in cash flow.

You only pay interest on what you use

With a business overdraft, you’re charged interest on the amount you actually borrow, not the full limit. If your limit is £20,000 but you only use £3,000 for a week, you’ll pay interest on £3,000 for seven days. The unused portion costs you nothing, which can make an overdraft cheaper than a loan when you need a small amount for a short time.

It’s quick to access once set up

Once your bank has approved the facility, the funds are there in your current account. You don’t need to make a new application each time you want to use it. If a supplier invoice lands on Tuesday and a customer payment is due on Friday, an overdraft can cover the gap without delays.

There’s no fixed repayment schedule

Unlike a business loan, an overdraft doesn’t come with set monthly repayments. You can clear the balance when cash comes in, or pay it down gradually. In many cases, banks expect the account to return to credit from time to time, and they may review the facility if it stays overdrawn for long periods.

You can reuse it once you’ve paid it back

As soon as you reduce or clear the balance, your available limit increases again. If your cash flow is seasonal, or your income is uneven month to month, that ongoing access can be more practical than applying for a new loan every time a gap appears.

It stops you missing payments when cash is tight

Missing supplier payments or failing direct debits can strain relationships and create extra costs, such as charges or service interruptions. An overdraft can give you a buffer so you can keep key outgoings on track while you’re waiting for money owed to you.

Disadvantages of a business overdraft

Used badly, a business overdraft can become expensive, and your bank can change the terms with limited notice.

The main disadvantages of a business overdraft are cost, control, and limited choice. Rates are often higher than most business loans, your bank can reduce or recall the facility at short notice, and you’re tied to whichever bank holds your current account.

Interest rates are higher than most business loans

Overdraft pricing varies by bank and by the strength of your business, but arranged overdrafts are often priced higher than fixed term business loans for the same borrowing. For short, occasional dips that can be manageable. If you’re consistently overdrawn, the cost builds quickly, and a term loan or revolving credit facility is usually cheaper.

The bank controls the facility, not you

A business overdraft is typically repayable on demand. That means your bank can ask for repayment, or reduce your limit, with limited notice. In practice, this is more likely if your financial position changes, but overdrafts are reviewed periodically, often at least once a year. If turnover has dropped, the account has stayed close to the limit for months, or you’ve missed payments elsewhere, don’t assume your current terms will stay the same.

You can only get one from your existing bank

A business overdraft is tied to your current account, so you can’t shop around in the same way you can with a loan or invoice finance. If your bank’s pricing isn’t competitive, switching provider usually means moving your whole business banking relationship, which can be disruptive.

Rates are variable, so costs are hard to predict

Overdraft pricing is usually variable. Some banks link it to a reference rate, and others set a variable EAR. Either way, when rates rise, your borrowing costs can rise too, which makes budgeting harder, especially if you’re using the facility regularly.

It’s easy to become dependent on it

An overdraft is designed as a short term buffer, not a permanent source of working capital. Because it’s always there and easy to draw on, it can become a habit. If you’re overdrawn more often than not, the underlying issue is usually wider cash flow rather than a one off timing gap, and an overdraft can end up masking that.

How much does a business overdraft cost?

The cost depends on how much you borrow and how long you stay overdrawn. Interest is calculated daily on the amount you’re overdrawn by, then applied to your account monthly.

Most UK banks charge between 10% and 19% EAR on arranged business overdrafts, depending on the size of the facility and your credit profile. On top of interest, you’ll usually pay an arrangement fee when the overdraft is set up, a renewal fee when it’s reviewed (often every 12 months), and penalty charges if you go beyond your agreed limit.

Arrangement fees vary. Some banks charge a flat fee from around £25, while others charge a percentage of the limit, usually between 1% and 2%. Renewal fees tend to be lower, but they’re still worth factoring in if you plan to keep the facility running year on year.

• For example: Say your bank has approved a £15,000 business overdraft at 12% EAR. You need to cover an £8,000 cash flow gap for 14 days while you wait for a customer payment to clear. The daily interest rate is roughly 0.033% (12% divided by 365). On £8,000 over 14 days, that’s around £37 in interest.

For a fortnight of breathing room, many businesses would consider that reasonable. But if that same £8,000 stayed overdrawn for three months, you’d be looking at closer to £240, and that’s before fees. The longer you stay overdrawn, the less an overdraft makes sense compared to a fixed term loan or revolving credit facility.

If you go beyond your agreed limit without arrangement, costs can jump sharply. Unauthorised overdraft rates at major UK banks can be as high as 29.5%, and most will charge a penalty fee on top.

When to use a business overdraft (and when not to)

A business overdraft is most useful when cash flow is out of sync for a short period. You’re waiting on money to land, but wages, VAT, or a supplier invoice has to be paid now.

Because it sits on your account, it’s easy to start treating it like part of your balance. If you’re dipping into it month after month, it stops being a safety net and starts getting expensive.

If you’re deciding between a business overdraft and a business loan, think about how long you’ll carry the borrowing. Overdrafts are made for short gaps and smaller amounts you’ll clear quickly. If you’ll be carrying the balance for months, a loan is often cheaper and far easier to budget for.

If late-paying customers are the reason you’re short, invoice finance can make more sense because it brings the cash forward. If you’re using borrowing for a one-off purchase, a fixed-term business loan is usually cheaper and easier to plan around.

VAT finance is a short-term loan that covers your quarterly VAT bill to HMRC, allowing you to spread the cost into fixed monthly instalments over 3 to 12 months, rather than paying a lump sum. Loan amounts typically range from £2,000 to £5 million, with most lenders able to approve funding within 48 hours and pay HMRC directly on your behalf.

Quarterly VAT bills often land at the worst possible time. Perhaps a big customer hasn’t paid yet, or you’ve just invested in stock ahead of a busy season. Rather than draining your working capital in one go, a VAT loan keeps your cash flow intact and your HMRC payments on track. 

Below, we’ll walk through the different types of VAT finance, what they cost, who’s eligible, and how to decide if one is right for your business.

What is VAT finance?

VAT finance is a type of short-term business loan designed specifically to cover your quarterly VAT payment to HMRC. A lender will either pay HMRC directly on your behalf or transfer the funds to your account so you can settle the bill yourself, depending on the provider.

It works differently to a standard business loan because it’s built around the VAT payment cycle. Lenders know what the money is for, when it’s due, and how it will be repaid. This can make the application process quicker and more focused than traditional borrowing.

Most VAT-registered businesses can apply. Lenders typically look at your credit history, trading record, and whether repayments are affordable. Loan amounts often range from around £2,000 to £5 million, with repayment terms commonly 3 to 12 months. Some lenders offer rolling or renewable facilities, so funding can be available again for future VAT quarters without starting from scratch.

How does VAT finance work?

You apply for a VAT loan after submitting your VAT return. If approved, the lender either pays HMRC directly on your behalf (or transfers the funds to you to pay), and you repay the lender in fixed monthly instalments (typically over 3 to 12 months).

• You apply to a lender for the amount you owe (often online).
• The lender reviews your application, usually checking bank statements, trading history and credit profile.
• If approved, funds are released (either to HMRC directly or to your business account, depending on the lender).
• You repay the loan in fixed monthly instalments over the agreed term.

For example: If your VAT bill is £30,000 and you spread it over three months, you’d repay around £10,000 per month plus interest. The exact cost depends on the lender, term, and credit profile. In return, you keep more cash in the business during the quarter instead of paying the full VAT amount in one go.

What types of VAT finance are available?

There are two main types of VAT finance: standard VAT loans, which cover your regular quarterly bill, and VAT bridging loans, which are used when VAT is due on a commercial property purchase.

Standard VAT loans

These are the most common type and the one most businesses will be looking for. You borrow enough to cover your quarterly VAT bill and repay in monthly instalments over 3 to 12 months. Most SMEs typically borrow between £5,000 and £50,000, though loans are available from around £2,000 up to £5 million for larger businesses.

Where standard VAT loans come into their own is with repeat use. Many lenders offer rolling facilities, so once you’re set up, you can draw down funding each quarter without going through a full application again. If your VAT bill is a regular cash flow pinch point rather than a one-off, this is usually the best option.

VAT bridging loans

These solve a different problem. If you’re buying commercial property and VAT is charged on the transaction, you may need to pay that upfront before HMRC processes your reclaim. A VAT bridging loan covers the gap. You borrow to pay the VAT on completion, then repay the loan once your reclaim comes through.

Because they’re short-term and tied to a specific reclaim, interest rates are higher than standard VAT loans, typically 1.25% to 1.5% per month. However, they can be arranged in as little as five days. That speed makes a real difference when VAT on a property deal crops up late in the process and you need to move quickly.

Who is eligible for a VAT loan?

Most VAT-registered businesses that have been trading for at least 12 months can apply for a VAT loan, though requirements vary between lenders. You’ll generally need to:

• Be VAT-registered with HMRC
• Have been trading for at least 12 months (some lenders accept 6 months)
• Have a reasonable credit history, though imperfect credit doesn’t automatically rule you out. It may mean higher rates or a requirement for security
• Be able to show that your business can comfortably afford the repayments alongside your other outgoings

Sole traders, partnerships, and limited companies can all apply. Most lenders will ask for recent bank statements, filed accounts, and a copy of your latest VAT return. Some may also require a personal guarantee or security against assets, though unsecured VAT loans are available for businesses with strong financials.

Timing is worth thinking about too. Most lenders will only fund a VAT bill before the payment deadline, not after. If you’ve already missed the due date, it becomes harder to get approved and the terms are usually less favourable. If cash flow is looking tight ahead of a quarter end, it pays to start the conversation early rather than waiting until the last minute.

What are the pros and cons of VAT loans?

The main advantage of a VAT loan is that it turns a large quarterly outgoing into smaller monthly payments. The main trade-off is cost: you’ll pay interest on money you’d otherwise owe directly to HMRC. 

Advantages of VAT loans

1. Your cash flow stays intact 

A quarterly VAT bill can take a serious chunk out of your working capital in one go. Spreading that across monthly payments means the money stays available for wages, stock, overheads, or investment during the quarter. That’s especially valuable if you’re waiting on customer payments or heading into a quieter trading period.

2. You avoid HMRC late payment penalties 

Since April 2025, HMRC charges a 3% penalty if your VAT is even 15 days late, rising to 6% after 30 days, with daily charges kicking in from day 31. Late payment interest also runs at the Bank of England base rate plus 4%. Even a modest VAT loan is almost certainly cheaper than those penalties stacking up.

3. It’s fast when you need it to be 

If your deadline is days away and cash is tight, a VAT loan can be approved and paid to HMRC before your due date. If your deadline is Friday and the money isn’t there, that turnaround can get you out of a tight spot.

Disadvantages of VAT loans

1. You’ll pay interest

Rates typically range from 4% to 15%, depending on the lender, your credit profile, and the repayment term. On a £30,000 bill over three months at 5%, that’s around £750 in interest. It’s not a huge sum relative to the bill itself, but it’s worth factoring in, especially if you’re using a VAT loan every quarter. If you’re unsure how to compare costs between lenders, our guide on the difference between APR and interest rate breaks it down.

2. Some lenders require a personal guarantee

Not all VAT loans are unsecured. Some lenders will ask for a personal guarantee or assets as collateral, which means you’re personally on the hook if the business can’t repay. If that’s a concern, look for lenders who offer unsecured options, though you’ll typically need strong financials to qualify. Our guide to secured vs unsecured business loans explains what this means in practice.

3. Repayments can still be sizeable

Terms of 3 to 12 months sound manageable, but on a large VAT bill the monthly repayments can still put pressure on your cash flow. It’s worth running the numbers before you commit to make sure the instalments sit comfortably alongside your other outgoings.

Is a VAT loan right for your business?

A VAT loan works best when your quarterly bill is due and the cash to cover it is tied up elsewhere. Maybe you’re waiting on a big invoice, or you’ve just invested heavily in stock or equipment. The loan covers your HMRC payment on time, you spread the cost over a few months, and your working capital stays where it’s needed.

It’s not always the answer, though. If you’re reaching for a VAT loan every quarter and it still feels like a squeeze, the real issue might be wider cash flow rather than the timing of one bill. In that case, a VAT loan is just a sticking plaster, and it’s worth looking at the bigger picture.

A few alternatives worth considering:

• Invoice finance lets you unlock cash tied up in unpaid invoices, so you’re not waiting 30, 60, or 90 days for customers to pay. If late-paying clients are the reason your VAT bill feels unaffordable, this tackles the root cause rather than the symptom.
• A revolving credit facility gives you a flexible credit line you can draw on whenever you need it, not just at quarter end. If your cash flow is lumpy throughout the year rather than just around VAT deadlines, this might be a better ongoing solution.
• HMRC’s Time to Pay scheme lets you spread an outstanding tax bill over up to 12 months directly with HMRC, with no lender involved. It’s worth knowing about, but it’s designed for businesses already in difficulty and can affect your credit standing.