Published and reviewed 12 October 2026. General information, not advice. Figures are illustrations, not lender quotes.
The short version
- A commercial loan is any borrowing taken by a business for a business purpose. It covers property loans, term loans, bridging, revolving facilities, asset finance and invoice finance, and each suits a different job.
- Match the finance to the purpose and the term to the life of the asset. Property suits a long secured loan, equipment suits asset finance, and gaps in customer payments suit invoice finance or a revolving facility.
- Lenders size a loan on security and on affordability, and the lower answer wins. In our example a company buying a £500,000 building could borrow about £318,000, not the £350,000 a 70% loan to value would allow.
- Compare the total cost, not the monthly payment. On £300,000, a 20-year property loan costs about £2,326 a month but over £258,000 in interest. A 7-year loan costs twice as much a month but about £105,000 in interest.
- Most commercial loans to limited companies are not regulated by the FCA, so the facility letter, the security documents and any personal guarantee are your main protection. Read them closely.
What is a commercial loan?
A commercial loan is money lent to a business for a business purpose. The phrase is an umbrella rather than a single product. It covers a loan to buy premises, a term loan to fund growth, a short bridging loan, an overdraft or revolving credit facility, finance for equipment and vehicles, and funding drawn against unpaid invoices. What makes it commercial is who is borrowing and why, not the paperwork.
In everyday use, people often say commercial loan when they mean a larger loan, especially one secured on commercial property. In the UK the most common version of that is the commercial mortgage. This guide covers the whole family, so you can see where each type fits before you speak to a lender.
Commercial loans and personal loans are treated differently
Three things change when a business borrows rather than an individual.
- The borrower is the business. For a limited company, the company signs the loan and is responsible for repaying it. Lenders look at its accounts, cash flow and credit file, and usually at the directors too.
- Protection is lighter. Most lending to limited companies sits outside consumer credit and mortgage regulation, so the terms you agree carry more weight. The section on regulation explains what protection still applies.
- Directors may share the risk. A lender to a smaller company will often ask the directors for a personal guarantee, which can make them personally liable if the company cannot pay.
Types of commercial loans compared
The type of finance matters more than the lender. Each one is built for a particular job, and using the wrong one is a common and expensive mistake, such as funding a building with short-term money or covering a two-month cash gap with a ten-year loan.
| Type | What it is for | Typical size and term | Security | Indicative cost |
|---|---|---|---|---|
| Commercial mortgage | Buying or refinancing premises the business uses, or property let to tenants. | Usually from about £50,000. Terms commonly 5 to 25 years. | A first legal charge over the property, often with a personal guarantee. | About 6% to 9% a year. |
| Secured term loan | Growth, acquisitions, refinancing or capital raising against property or assets the business already owns. | Tens of thousands to millions. Terms commonly 1 to 15 years. | A first or second charge over property, or a debenture over company assets. | About 6% to 12% a year. |
| Unsecured term loan | Hiring, marketing, stock, fit-out and other growth costs with no single asset behind them. | Commonly £5,000 to £500,000. Terms commonly 1 to 6 years. | No asset charge, but a personal guarantee is usual for smaller companies. | About 8% to 15% APR from banks, wider from online lenders. |
| Bridging loan | Short-term property purchases, auctions, breaking a chain or funding works before a long-term loan. | Usually from about £100,000. Terms commonly 3 to 18 months. | A first or second charge over property. | Commonly about 0.5% to 1.5% a month, plus arrangement and exit fees. |
| Development finance | Building or substantially refurbishing property for sale or letting. | Usually from about £250,000. Terms commonly 12 to 24 months. | A first charge over the site, released in stages as work progresses. | Usually priced above bridging, plus arrangement, monitoring and exit fees. |
| Revolving credit facility or overdraft | Day-to-day working capital and uneven cash flow. | A limit you draw and repay as needed, often reviewed each year. | Often a debenture and a personal guarantee. | A margin over Bank Rate on what you use, plus arrangement or non-use fees. |
| Asset finance | Equipment, machinery and vehicles, through hire purchase or leasing. | From a few thousand pounds. Terms usually matched to the asset, commonly 2 to 7 years. | The asset itself. | About 6% to 15% equivalent a year, often quoted as a flat rate. |
| Invoice finance | Releasing cash tied up in unpaid invoices to other businesses. | Commonly 70% to 90% of approved invoices, as an ongoing facility. | The invoices, often with a debenture. | A discount charge on the money drawn plus a service fee. |
| Merchant cash advance | Short-term funding repaid from future card takings. | Commonly a few thousand to a few hundred thousand pounds, repaid over months. | Future card sales, sometimes with a personal guarantee. | Quoted as a factor rate. The equivalent APR is often 40% or more. |
Figures are indicative ranges for UK limited companies, drawn from published lender examples and market data as of October 2026. They are not quotes, and lenders set their own limits. Our guide to business loan interest rates explains how each type is priced and how to compare different kinds of quote. For a shorter overview organised by what the money is for, see types of business loans.
How commercial loans work
Most commercial loans are built from the same parts: how the money is drawn, how it is repaid, how interest is charged, what secures it and what conditions come with it. Knowing the parts makes offers much easier to compare.
How you draw the money
A term loan pays a lump sum on completion. A staged loan, such as development finance, releases money in tranches as work is done and checked. A revolving facility gives you a limit to draw, repay and draw again, so you pay interest only on what you use.
How you repay it
| Repayment structure | How it works | Suits | Watch for |
|---|---|---|---|
| Capital and interest | Equal regular payments that clear the loan by the end of the term. | Most term loans and owner-occupied property. | A higher monthly cost than interest-only. |
| Interest-only | You pay only the interest. The full balance is due at the end. | Investment property with a clear plan to repay, and bridging. | You need a credible way to repay the whole sum, usually a sale or refinance. |
| Part repayment with a balloon | Lower regular payments, with a larger final payment due at the end. | Larger property loans, often set to a longer repayment profile than the term. | The balloon must be refinanced or repaid, whatever rates are by then. |
| Retained or rolled-up interest | Interest is deducted at the start or added to the balance and paid on exit. | Bridging and development finance, where the property produces no income yet. | Retained interest reduces the cash you receive. Rolled-up interest grows the debt. |
How interest is charged
A fixed rate stays the same for an agreed period. A variable rate can change, and a tracker moves with a benchmark: Bank Rate for most smaller loans, or SONIA, the market overnight rate, for some larger facilities. With Bank Rate at 3.75%, a tracker at Bank Rate plus 3% costs 6.75%. Short-term finance is often quoted as a monthly rate or a factor rate instead, which cannot be compared with an annual rate until you convert it. Our guide to short-term business loans converts four common quotes on the same £30,000.
What secures it
- A fixed charge over a specific asset, such as a building, gives the lender the right to sell that asset if the loan is not repaid. A first charge ranks ahead of any second charge.
- A debenture usually combines fixed charges with a floating charge over the company’s other assets, such as stock and money owed by customers.
- A personal guarantee is a promise by a director or owner to pay if the company cannot. It is not a charge over an asset, but it can be enforced against your personal wealth. Our personal guarantees guide explains what to ask before signing.
A company must register a charge at Companies House within 21 days of creating it, and the lender usually handles this. Registered charges are public, so other lenders will see them. Our guide to secured vs unsecured business loans covers the trade-offs in detail.
The conditions that come with it
Larger commercial loans usually include covenants: promises the business keeps for the life of the loan. Common ones are a maximum loan to value, a minimum interest cover or debt service cover, sending accounts each year and not taking other secured borrowing without consent. Breaking a covenant can let the lender charge more, ask for repayment or demand extra security, even if every payment has been made on time. Ask for each covenant to be explained in pounds before you sign.
Commercial property loans
Commercial property loans are the largest and longest commercial loans most businesses take. There are four main kinds, and they are assessed in different ways.
| Kind | Used for | What repays it | Typical maximum loan |
|---|---|---|---|
| Owner-occupied commercial mortgage | Premises the company trades from, such as a workshop, office, clinic or warehouse. | Trading profits. | Commonly 60% to 75% of the property value. |
| Investment commercial mortgage | Property let to other businesses. | Rent from tenants. | Commonly 60% to 70% of value, depending on the lease and tenant. |
| Commercial bridging loan | A fast or short-term purchase, or a property that needs work before a long-term lender will fund it. | A sale or a refinance onto a longer loan. | Commonly up to about 70% to 75% of value. |
| Development finance | New build or major conversion. | Sale or refinance of the finished scheme. | Commonly sized on build cost and the finished value, rather than the current value. |
How long are commercial property loans?
Commercial mortgages are commonly arranged over 5 to 25 years, with some lenders offering up to 30. A fixed rate usually lasts for part of the term, often 3 to 5 years. Bridging loans typically run for 3 to 18 months, as our guide to commercial bridging loans explains, and development loans for the length of the build plus a sales period. Shorter than a home mortgage is normal, and lenders often want the loan repaid well before a lease ends or the building needs major work.
How much deposit does a commercial property loan need?
Because most lenders lend 60% to 75% of the value, plan for a deposit of 25% to 40% of the price, plus stamp duty, valuation, legal fees and lender fees. A younger company or an unusual building may need more. Our step-by-step guide on how to get a commercial mortgage works through the full upfront cash on a £400,000 purchase, and the commercial mortgage calculator shows the loan to value and repayments for your own figures.
Our upcoming introduction service is limited to UK limited companies and excludes residential-property security, so mixed-use buildings with flats, and loans secured on a home, fall outside it.
How much can a business borrow?
There is no standard multiple. Each lender applies its own tests, and the type of finance decides which tests matter. Most lenders run more than one and lend the lowest answer.
| Test | What it measures | Used mainly for |
|---|---|---|
| Loan to value (LTV) | The loan as a share of the security’s value, using the lender’s valuation. | Property loans, bridging, secured loans and asset finance. |
| Debt service cover (DSCR) | Earnings available to pay debt, divided by the yearly loan repayments. Cover of about 1.25 to 1.5 times is a common reference point. | Owner-occupied property and larger term loans. |
| Interest cover (ICR) | Rent or profit divided by the yearly interest, often tested at a rate above the actual rate. | Investment property. |
| Turnover and cash flow | Annual sales, bank statement inflows and existing commitments. | Unsecured loans and merchant cash advances. |
| Advance rate | A percentage of approved invoices or stock. | Invoice finance and stock finance. |
Worked example: two tests, one answer
A limited company wants to buy a £500,000 workshop it already rents. These figures are illustrations, not offers.
- The value test. The lender’s maximum is 70% loan to value, so the property could support up to £350,000.
- The affordability test. The company’s EBITDA is £25,000. Once it owns the building it will no longer pay £15,000 a year in rent, so the lender adds that back, giving £40,000 a year to service debt. At a required cover of 1.35 times, the most it can spend on repayments is about £29,630 a year, or £2,469 a month.
- The answer. At 7% over 20 years, £2,469 a month repays a loan of about £318,000. That is lower than the value test, so it sets the limit. The deposit has to be about £182,000, not £150,000, before any costs.
Two changes show how sensitive the answer is. Stretch the term to 25 years and the same payment supports about £349,000. Raise the rate to 9% over 20 years and it supports only about £274,000.
The lesson is to work out both tests before you agree a price. If affordability is the limit, a longer term, a larger deposit, or higher profits in the latest accounts will move the figure more than a lender with a higher loan to value. Unsecured lenders usually link the maximum to turnover and cash flow, so a company turning over £500,000 should not expect an unsecured offer anywhere near that sum. Our guide to how much you can borrow works through each test step by step.
What a commercial loan really costs
The cost of a commercial loan has three parts: the interest, the fees and the conditions that can cost money later. The Bank of England puts the average interest rate on new bank loans to small and medium-sized businesses at 6.63% in August 2026, with Bank Rate at 3.75%. That is an average of what banks lent. Secured property loans to strong companies can beat it, and short-term or unsecured finance usually costs more.
The fees to budget for
| Fee | Typical basis | When it is paid |
|---|---|---|
| Arrangement fee | Commonly 1% to 2% of the loan, sometimes more on short-term finance. | On completion, often deducted from the advance or added to the loan. |
| Valuation fee | Set by the valuer according to the property, often from about £1,500 for a modest building. | Upfront, and usually not refundable if the loan does not go ahead. |
| Legal fees | You normally pay your own solicitor and the lender’s. | On or before completion. |
| Broker fee | Some brokers charge a fee, others are paid commission by the lender, or both. | Ask in writing before you proceed. |
| Exit fee | Commonly up to 1% of the loan on bridging and development finance. | When the loan is repaid. |
| Early repayment charge | Often a sliding percentage on fixed-rate loans, or a break cost. | If you repay early, sell or refinance. |
| Non-use and monitoring fees | A charge on the unused part of a facility, or for a surveyor checking building work. | During the facility. |
Worked example: £300,000 three ways
The same company needs £300,000. These are illustrations with simple assumptions, not quotes, and they ignore valuation and legal costs, which apply to all three.
- Commercial mortgage, 20 years at 7%, 1% arrangement fee: about £2,326 a month. Interest in the first year is about £20,774, and total interest over the term is about £258,215. The fee is £3,000.
- Secured term loan, 7 years at 9%, 2% arrangement fee: about £4,827 a month. Interest in the first year is about £25,692, and total interest is about £105,445. The fee is £6,000.
- Bridging loan, 12 months at 0.85% a month, 2% arrangement fee and 1% exit fee: interest of £30,600 for the year plus £9,000 in fees, a total of £39,600. The full £300,000 is still owed at the end and must be repaid by a sale or refinance.
The longest loan has the lowest monthly cost and the highest total interest. The seven-year loan costs more each month but less than half the interest. The bridging loan is the most expensive per year, but if it is replaced after six months by a cheaper long-term loan, it can be the right tool. The right choice depends on what the money is for and how long it is needed.
Turn any rate and term into monthly figures with the business loan calculator, and use our guide to comparing business loans to line offers up on the same basis.
How to qualify for a commercial loan
Every lender has its own criteria, but they are trying to answer the same questions: can the business repay, what happens if it cannot, and can the lender trust the information in front of it?
| What they look at | What helps | What can hold you back |
|---|---|---|
| Trading record | Two or more years of filed accounts. | A very new company, or accounts that are late or out of date. |
| Profit and cash flow | Profits that cover the repayments with room to spare, and steady bank statements. | Losses, falling sales or frequent use of an overdraft limit. |
| Credit history | A clean record for the company and its directors. | Missed payments, defaults, County Court Judgments or tax arrears. |
| Security | Property or assets with a clear value and no competing charges. | Specialist buildings, short leases or heavy existing borrowing. |
| Purpose and plan | A clear use for the money and a realistic forecast. | A vague purpose, or a plan that relies on everything going right. |
| People | Directors with relevant experience, especially for property and development. | No track record in the sector or type of project. |
Documents to have ready
- The last two or three years of filed accounts, plus recent management accounts.
- Six to twelve months of business bank statements.
- A cash flow forecast covering at least the next year, with the new repayments included.
- A schedule of existing borrowing, leases and finance agreements.
- For property: the address, price, tenure, any leases and rent roll, and planning details.
- Identity and address checks for the directors and anyone with significant control.
Lenders may also ask about any tax owed to HMRC and for the directors’ personal assets and liabilities if guarantees are involved. A government-backed loan under the Growth Guarantee Scheme can help a lender say yes where security is limited, but the business still has to show it can afford the loan. Our Growth Guarantee Scheme guide explains who qualifies and what scheme loans cost. Our borrowing checklist covers five checks to make before applying, and our guide on how to get a business loan covers credit files, documents and what to do if you are declined.
How to apply for a commercial loan, step by step
- Define the job and the amount. Separate what the business must spend from what would be nice to have, and decide how long the money is needed for.
- Choose the type of finance. Use the comparison table and match the term to the life of the asset or project.
- Run both lender tests yourself. Work out the loan to value and the repayment cover before you agree a price or a budget.
- Gather your documents. Having accounts, statements and a forecast ready is the easiest way to save time.
- Get an indicative offer. Many lenders give an outline offer, sometimes called heads of terms or an agreement in principle, after an initial review. Ask whether it involves a hard credit search.
- Underwriting and valuation. The lender checks the detail, values any property and may ask further questions.
- Read the formal offer. Check the rate basis, every fee, the covenants, the security and any personal guarantee. Have a solicitor explain anything you are unsure of.
- Legal work and completion. Solicitors deal with title, charges and conditions, then the money is released.
| Type of finance | Typical timescale |
|---|---|
| Unsecured term loan or merchant cash advance | A few days to two weeks. |
| Asset finance | A few days to a few weeks, depending on the supplier and the asset. |
| Invoice finance | Usually one to four weeks to set up the facility. |
| Bridging loan | Often two to four weeks, faster where the valuation and legal work are simple. |
| Commercial mortgage or secured term loan | Commonly six to twelve weeks, longer for complex property. |
| Development finance | Several weeks to a few months, including cost and planning checks. |
Timescales are indicative. Delays most often come from missing documents, a valuation that comes in low, or legal questions about the property.
Are commercial loans regulated?
Mostly not, when the borrower is a limited company. Consumer credit rules and FCA mortgage rules are designed to protect individuals. A loan to a limited company for business purposes generally falls outside both, whatever its size. That means there may be no regulated affordability assessment, no cooling-off period and fewer rules on how the lender behaves if things go wrong.
Some protection still exists.
- Sole traders and small partnerships borrowing £25,000 or less can be covered by consumer credit rules, even for business purposes. Our introduction service does not cover them, but the protection is worth knowing about.
- The Financial Ombudsman Service can consider complaints from micro-enterprises and small businesses, including about lending that is not otherwise regulated. A small business here means annual turnover under £6.5 million and either fewer than 50 employees or a balance sheet under £5 million. Check the Financial Ombudsman’s eligibility rules for the detail.
- The Lending Standards Board oversees the Standards of Lending Practice for business customers, a voluntary code that many banks and lenders have signed up to. It covers loans, overdrafts and credit cards for smaller businesses. Ask whether your lender follows it.
- Personal guarantors of a company loan can also complain to the Financial Ombudsman about a guarantee given on or after 1 April 2019, where the company itself is eligible.
In practice, the facility letter and the security documents are your main protection. Read them in full, and take independent legal advice before signing a charge or a personal guarantee. If you are dealing with a broker or lender that carries out any regulated activity, check it on the FCA Register.
Which commercial loan fits your plan?
Start with what the money is for, then check the term, the security and the total cost. This table maps common needs to the finance usually considered first.
| If you need to | Look first at | Why |
|---|---|---|
| Buy or refinance your premises | Commercial mortgage | The longest terms and lowest rates, matched to a long-lived asset. |
| Buy property quickly or before works | Bridging, then a commercial mortgage | Speed now, cheaper long-term money once the property qualifies. |
| Raise money against property you own | Secured business loan | Security can unlock larger sums and longer terms. |
| Buy equipment or vehicles | Asset finance | The asset secures itself, so other assets stay free. |
| Fund growth, hiring or marketing | Small business loan or unsecured loan | A fixed sum and term for a defined project. |
| Smooth slow-paying customers | Invoice finance or a revolving facility | Funding grows with sales and is repaid as customers pay. |
| Cover a short, seasonal dip | Overdraft or revolving facility | You pay interest only on what you use, for as long as you use it. |
Sometimes the best answer is not to borrow yet, or to borrow less. If the repayment would only work in a good month, a smaller first step, a longer term or better payment terms with customers and suppliers may be safer. The funding route finder suggests a starting point in two questions.
Where Business Loan Advice fits
We are not a lender and we do not give personal advice. We are preparing a service that will introduce UK limited companies directly to lenders. No lenders are confirmed yet, so we cannot currently obtain quotes or make introductions. You will not pay us a fee. If a lender pays us commission after the service launches, we will tell you before asking your permission to refer you.
In the meantime, the business loan calculator, the commercial mortgage calculator and these guides are free to use with no sign-up. If your limited company is planning to borrow, you can register its interest and we will contact you about the service launch. Read how we are paid for the details.
Common questions
What is a commercial loan?
A commercial loan is money lent to a business for a business purpose. It includes commercial mortgages, secured and unsecured term loans, bridging loans, development finance, revolving facilities, asset finance and invoice finance. The lender assesses the business, and often the directors, rather than one person’s income.
What is the difference between a commercial loan and a business loan?
In practice the terms overlap. Business loan usually means a term loan of a fixed sum. Commercial loan is often used for larger borrowing, especially loans secured on commercial property, but it can describe any finance taken by a business for a business purpose.
Is a commercial loan the same as a commercial mortgage?
Not always. A commercial mortgage is one kind of commercial loan, secured on commercial property and usually repaid over 5 to 25 years. Commercial loans also include unsecured loans, bridging, asset finance and invoice finance, which are not secured on property.
How long are commercial property loans?
Commercial mortgages are commonly arranged over 5 to 25 years, and some lenders go up to 30. Fixed rates usually last 3 to 5 years within that. Bridging loans run for about 3 to 18 months and development loans for the build plus a sales period.
What deposit do I need for a commercial loan?
For commercial property, most lenders lend 60% to 75% of the value, so plan for a deposit of 25% to 40% plus buying costs. Unsecured loans need no deposit. Asset finance may need a deposit, depending on the asset and the agreement.
Are commercial loan rates higher than residential mortgage rates?
Usually, yes. In August 2026 the Bank of England average rate on new bank loans to SMEs was 6.63%, against 4.60% on new secured loans to households, which are mostly home mortgages. Business income is less predictable and commercial property can be harder to sell.
Can commercial loans be unsecured?
Yes. Unsecured term loans, merchant cash advances and some revolving facilities are not secured on a specific asset. Lenders usually ask directors of smaller companies for a personal guarantee instead, and unsecured loans are smaller and often cost more than secured ones.
Are commercial loans regulated by the FCA?
Most loans to limited companies for business purposes are not regulated by the FCA. Micro-enterprises and small businesses can still complain to the Financial Ombudsman about lending, and many banks have signed up to the Lending Standards Board’s voluntary standards for business customers.
How long does it take to get a commercial loan?
Unsecured loans can be arranged in days. Asset and invoice finance usually take one to four weeks. Bridging loans often take two to four weeks, and commercial mortgages commonly take six to twelve weeks because of the valuation and legal work.
Can a new company get a commercial loan?
It is harder but possible. Many lenders want two years of accounts. A new company may be offered less, need a larger deposit or a personal guarantee, or be better suited to asset finance, invoice finance or a government-backed scheme.
Can you refinance a commercial loan?
Yes. Companies refinance to get a better rate, release equity, replace a bridging loan or consolidate borrowing. Check any early repayment charges, exit fees or break costs on the existing loan first, and compare the total cost of switching.
Bank of England: Money and Credit, August 2026 (effective rates on new loans to SMEs and households)
Bank of England: Bank Rate maintained at 3.75%, September 2026
British Business Bank: Growth Guarantee Scheme
GOV.UK: Register a charge for a limited company
Financial Ombudsman Service: which small businesses we can help
Lending Standards Board: the Standards of Lending Practice
Rates, tax bands and lender criteria change. Confirm the current details with the lender, your solicitor or your accountant before relying on them.