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What is a business term loan?
A business term loan is an agreement under which a lender advances a capital sum to a limited company, which the company repays — with interest — in regular instalments over an agreed period. The term can range from under a year for short-term facilities to ten or more years for property-linked lending.
Unlike a revolving facility such as a revolving credit facility, a term loan is drawn once. Once repaid, the credit is not automatically reinstated. This makes it well-suited to funding a specific, known requirement rather than ongoing working-capital fluctuations.
Fixed-rate versus variable-rate term loans
A fixed-rate term loan locks the interest rate for the full term, giving the company certainty over its monthly outgoings. A variable-rate loan is typically priced at a margin above a reference rate such as the Bank of England base rate, so monthly costs move with market conditions.
Fixed rates suit companies that need predictable cash flow — for example, those financing a specific piece of infrastructure with known income. Variable rates may produce lower initial costs but carry refinancing risk if rates rise materially over the term.
Secured and unsecured term loans
Lenders may require security — a first or second charge over property, a debenture over business assets, or a personal guarantee from directors — particularly for larger amounts or early-stage businesses. Unsecured term loans are available but typically carry higher pricing to reflect the lender's increased risk position.
For companies with substantial fixed assets, a secured term loan often unlocks higher amounts and longer terms. See also asset finance if the underlying asset itself is the purpose of the borrowing.
When a term loan is the right fit
Term loans work well when the company has a clearly bounded funding requirement: acquiring premises, funding a management buyout, financing a large equipment purchase outright, or consolidating higher-cost short-term debt. The fixed repayment schedule aligns with projects that have a defined payback period.
If the funding need is recurring or the amount required fluctuates month to month, a revolving credit facility or business overdraft may be more cost-effective.
Figures quoted in any illustration are indicative only and do not constitute a quote or offer.
Frequently asked questions
Can a limited company get a term loan without a personal guarantee?
Some lenders offer unsecured term loans without a personal guarantee, but these are typically reserved for well-established companies with strong financials. Most lenders serving smaller or younger businesses will request at least a personal guarantee from the principal directors.
What documentation will a lender typically need?
Lenders normally require two to three years of filed accounts, recent management accounts, bank statements for the last three to six months, and details of any existing debt. A clear statement of what the loan is for and how it will be repaid strengthens the application.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.