Business loans are one of the first options businesses look toward to raise funds to grow or expand. 

These loans are specifically intended for business purposes, where you’ll be lent a sum of money over a period of time, and the interest rate and monthly repayments can be fixed over the term. 

The six most common business loans are:

• Asset-based lending — Asset finance allows businesses to grow by acquiring equipment, machinery, vehicles and more. Essentially, it uses physical assets as a form of security. 
• Term loans — Term loans are usually unsecured loans that allow businesses to borrow a specified amount for a fixed period with an agreed schedule for repayment.
• Merchant Cash Advance (MCA) — MCA is a flexible source of funding for businesses. With this finance option, repayments are based on monthly sales, so companies only repay what they can afford each month. 
• Short-term business loans — This borrowing form allows companies to access funds to cover their day-to-day expenses. Short-term business loans have a shorter repayment period. 
• Secured business loans — These loans are designed to help businesses get the funding they need to run to their full potential. Secured business loans use assets of value for security. For businesses, this can be properties, premises, machinery or other high-value assets. Business mortgages are also a type of secured loan.
• Interest-free loans (IF) — IF loans allow businesses to borrow money without having to pay added interest on repayments. Interest-free loans are usually only available for small businesses looking for finance options. 

The South East of England recorded the highest number of short-term loans taken out by businesses. How does your region measure up?

With quicker approval times, it’s no wonder short-term loans were overwhelmingly the most common type of business loan for every UK region in 2021, with the South East coming out on top with 268 loans in total. It could be that the pandemic meant many businesses were in need of a quick loan to cover emergency costs.

From the 837 loans analysed, a staggering 65% (539) of businesses chose a short-term loan as their finance solution. 

The research also revealed that London only accounted for 37 loans in total, despite the high number of start-up companies in the capital. The increased number of loans in the South East could indicate a shift of new businesses looking for opportunities elsewhere away from the capital. 

The least popular type of loans taken out across the regions was IF (13) and secured loans (15). Since secure loans require collateral — such as commercial property — that can be claimed should businesses fail to repay loans, it’s no surprise that this is one of the least popular loan types. 

Due to the uncertainty caused by the Covid-19 pandemic, this could suggest that businesses may have been unwilling to potentially lose valuable assets if the loan couldn’t be paid back. Although interest rates of secured loans are usually lower because they are less risky to the investor, there is potentially more to lose for the borrower. 

The same can be said for asset-based loans, through which physical assets are used as security and can be seized without payment. Only 41 asset-based loans were taken out in total, making this the 3rd least-common type of loan overall.

Overall, the amount businesses are borrowing has increased over the past 6 years, with spending rising steadily from 2017 and jumping significantly in 2020 and 2021. 

The research revealed that the highest borrowing figures seen overall were in 2020. No doubt, this is a direct result of the pandemic, as businesses were in need of loans to support cash flow in a time of economic uncertainty. London was the region borrowing the most during this time, with companies borrowing an astounding £1,393,574,506 in total. 

In comparison, 2022 saw borrowing numbers fall significantly for the first time since 2018, with Wales and Scotland cutting spending by around 50%. 

Between 2019 and 2020, Yorkshire and the Humber saw borrowing jump by a huge £3,162,946 before rising to a further £7,087,003 in 2021. Interestingly, the region has scaled back the figure stupendously to just £160,000 for 2022. 

The North West is the only region that didn’t have a majorly significant borrowing jump, steadily increasing from £2,259,691.00 in 2019 to £3,601,260.00 in 2022. 

The construction industry borrowed the most money. Did your industry make the list?

Overall, construction was the industry that borrowed the most in business loans. Considering this industry has encountered many problems lately, including labour shortages and supply chain issues caused by the pandemic and Brexit, it’s no surprise that it was the highest by a far margin. 

In comparison, wholesale and retail trade (repair of motor vehicles and motorcycles) was the 2nd highest spending industry. Due to the pandemic, this industry was completely decimated, and car production fell by 45% compared to pre-pandemic levels and in August 2021, a global chip storage severely impacted car sales around the world.

Administrative and support services activities saw the third-highest borrowing numbers. This could be thanks to flexible working patterns meaning fewer people are working in offices, and subsequently, there’s less need for administrative support. 

There are a number of reasons why businesses choose to borrow. Sometimes it’s because an unexpected expense has cropped up, other times it’s because they need to purchase a new piece of equipment. 

Think Business Loans data showed that borrowing was at an all-time high in 2020 as new lockdown businesses exploded, with a significant increase per region in 2021. 

When it comes to scaling up, there are now more options than ever to help your business thrive in ways it may not have before. 

In response to the data gathered for this research, Think Business have put together some advice that businesses should consider when deciding whether to borrow. 

1. Can help businesses get off the ground - Often, when businesses first start-up, owners will try and be frugal with their cash so they won’t have to borrow from external sources — but this can just cause more harm than good. Business loans can help elevate some pressure off first-time business owners.
2. Help to fund new equipment - Investing in the proper equipment needed for your business to succeed and improve productivity is a sensible reason to borrow.

“Asset-based lending allows businesses to grow by acquiring equipment and machinery — and then use this as a form of security to ensure a business's repayments,” says Jamie Stewart, Managing Director at Think Business Loans. "Without some form of lending, it’s hard for businesses to even get off the ground.”

1. Compare the cost of business loans - When you’re deciding which loan is best to support your business, it’s important to make sure you’re comparing the costs. At Think Business Loans, we’ll help you choose the right type of finance for your business and compare hundreds of lenders to find the best rates. 
2. Repay the loan as quickly as possible - When you take out a loan to start or grow your business, it’s important to repay the loan as quickly as possible. Not only will this help save money on interest, but it can also ease the burden of repaying and you can enjoy the peace of mind that comes with being debt-free. 
3. Make sure to have a solid business plan - Lenders are more likely to give lower interest rates if they can see your business plan and long-term goals. This way, it’ll be easier for them to trust your ability to repay the loan.

The headline finding from this survey is that businesses are roughly borrowing more and more every year — with help from the Covid-19 pandemic. 

• Short-term loans were overwhelmingly the most popular type of loan taken out by every UK region, with 65% of businesses choosing a short-term loan as their finance solution. 
• Borrowing was at an all-time high in 2020, with a significant increase in 2021 per region. 
• 2022 borrowing numbers fell for the first time since 2018.
• The construction industry borrowed the most money compared to any other.

If your business needs a leg up, then the team at Think Business Loans can help. Compare all of your loan options — including Asset Finance, Secured and Unsecured Loans — and find finance that fits.