Business loans are taken primarily in order to set up a new business, which often requires construction costs for the premises, buying machinery and equipment, registration fees and other. Once the business is up and running, a loan my be required to form a working capital or for the purposes of expansion. Business loans can be secured (with a collateral in the form of the business itself, a house or any other property) or unsecured, where you do not provide any asset as a guarantee. (For more on Secured vs Unsecured Loans see Personal Loans).

In terms of interest rates, paid on the sum borrowed, loans can be fixed-rate (you pay the same interest throughout the term) or variable-rate (the rate changes according to the general market interest rates and can go up and down). Slightly safer variants of the last type are cupped loans, with a variable interest, which, nevertheless, has a maximum level over which it is guaranteed not to rise, and tracker loans with a variable interest, proportionally linked to a particular rate, say, the Bank of England Base Rate.

Business loans are not arranged over Internet or phone calls and require serious preparation. First of all you should present the potential lender or a bank with a business plan or a business proposition and to have a clear and detailed idea of your overall financial situation. For obtaining a business loan it is often required to put down a part of the capital – sometimes as much as the amount one is intending to borrow.

In the UK there are a number of solutions to help you get a business loan. For small to medium businesses with an annual turnover of up to £25 million the Enterpise Finance Guarantee of the Department for Business, Innovation & Skills (BIS) offers a guarantee that covers 75% of the loan in exchange of a premium of 2% per annum of the outstanding balance of the loan. (For details see http://www.bis.gov.uk/policies/enterprise-and-business-support/access-to-finance/enterprise-finance-guarantee ) Apart from the traditional UK lenders, such as banks and building societies, there is a number of specialised lenders, such as Prime for people over 50 who want to start their own business, the Prince’s Trust for young people in business, and the Industrial Common Ownership Finance Fund for cooperative and social enterprise sector.

But beware unauthorised lenders, also known as business sharks. They offer to give you a loan fast, often without a business plan or a collateral, but the interest rate would be considerably higher than the normal rate. They normally hesitate to disclose all loan terms and conditions and try to stretch the loan term to the maximum. In the UK it is always possible to check if the lender is licenced by the Office of Fair Trading (OFT) on their website http://www.bis.gov.uk/policies/enterprise-and-business-support/access-to-finance/enterprise-finance-guarantee