The short answer: business loan rates vary widely, broadly from around 6% to 30% a year depending on the business, the lender and whether the loan is secured. Fees and early repayment charges can add significantly to that. On a £100,000 loan over five years, the difference between a strong and a weak application can be more than £50,000 in interest. This guide explains every cost and what moves it.
The costs that make up a business loan
Interest. The main cost, fixed or variable. Variable rates usually move with the Bank of England Bank Rate, which rose to 4% on 5 November 2026.
Arrangement or completion fee. Many major banks charge no arrangement fee on smaller loans. Alternative lenders commonly charge 1% to 5% of the loan, sometimes deducted from the money you receive.
Early repayment charge. Some loans can be repaid early at no cost; others charge a fee, often a number of months' interest or a percentage of the balance.
Broker fee. Some brokers charge the borrower a fee in addition to lender commission. Ask before you start. Our guide to how finance brokers are paid explains the models.
Security and guarantees. Not a cash cost, but a real one. Most unsecured business loans need a personal guarantee from the directors. See our guide to personal guarantees.
Default and late payment charges. Extra interest and fees if a payment is missed.
What moves your rate
Secured or unsecured. Loans secured on property or assets are usually cheaper.
Trading history and profitability. Two or more years of filed accounts with visible profit open up cheaper lenders.
Credit profile. The business's Delphi score and the directors' personal credit. See understanding your Delphi score.
Existing debt. High existing borrowing, or a recent merchant cash advance, raises the rate.
The lender type. High street banks are usually cheapest but most selective. Alternative lenders are faster and more flexible, and usually more expensive.
The term. Longer terms reduce the monthly payment but increase total interest.
Government backing. Loans under the Growth Guarantee Scheme can make lenders more willing to lend. Pricing still varies by lender.
Our guide to how lenders decide explains the full assessment.
Worked examples: £100,000 over five years
Illustrative only and not offers. Assumes fixed monthly repayments and no fees, for a loan to a limited company.
At 8% a year: about £2,028 a month, £21,658 total interest
At 15% a year: about £2,379 a month, £42,740 total interest
At 25% a year: about £2,935 a month, £76,108 total interest
The gap between 8% and 25% is more than £54,000 over the term, for the same amount of money. That is why preparation and lender choice matter more than a quick approval.
The fee effect. On the same loan at 15%, a 3% arrangement fee deducted from the advance means you receive £97,000 but repay as if you borrowed £100,000. That lifts the effective rate to about 16.4%. Always compare loans on the total amount repayable against the cash you actually receive.
The term effect. At 15%, repaying over three years instead of five raises the monthly payment to about £3,467 but cuts the interest to about £24,795, saving almost £18,000.
The costs people miss
Fees deducted at drawdown, which reduce the cash you receive
Variable rates that rise with Bank Rate, increasing payments during the term
Early repayment charges that remove the benefit of clearing the loan early
All-monies guarantees that cover more than the loan you signed for
Stacking, where a second short-term loan makes the first harder to repay
How to lower the cost
Get filings and management accounts up to date before you apply.
Check business and personal credit files, and fix errors first.
Borrow for a specific purpose, and match the product to it. Asset finance for equipment and invoice finance for working capital are often cheaper than an unsecured loan.
Choose the shortest term the business can comfortably afford.
Ask about arrangement fees and early repayment charges before you apply, not after.
Approach the right lender once, rather than several at once.
When a business loan is not the right answer
If the loan is to cover ongoing losses, more debt usually makes the position worse. If the need is tied to unpaid invoices or to a specific asset, a product secured on those may be cheaper and need a smaller guarantee. We would rather recommend the right structure than the biggest loan.
Frequently asked questions
What is a typical business loan interest rate?
Broadly 6% to 30% a year, depending on the business, the lender and security. Strong, established businesses borrowing from banks sit at the lower end.
Do business loans have arrangement fees?
Many major banks charge none on smaller loans. Alternative lenders commonly charge 1% to 5%. Always ask.
Can I repay a business loan early?
Usually, but some loans carry an early repayment charge. Check the terms before you sign if early repayment is likely.
Did the Bank Rate rise affect my loan?
Only if your loan has a variable rate. Fixed-rate loans are unaffected for the fixed period.
Are business loans regulated?
Most lending to limited companies is not regulated by the FCA. Loans of £25,000 or less to sole traders and small partnerships usually are, and carry extra protections.
Talk it through
If you want to know what a loan would realistically cost your business, speak to Pinks. More on loan types is on our business loans page and our business funding hub.
Figures are illustrative only and are not offers of finance. Finance is subject to status and lender criteria. Pinks Associates Limited is a credit broker, not a lender. Information correct as at November 2026.
