£1 million business loan: how seven-figure funding is structured

A £1 million business loan is rarely a single, standard product. It is usually a facility agreement that sets out one or more tranches of funding, the security, the covenants and the conditions that must be met before money is released. A typical package might combine a term loan for an acquisition or capital project, a revolving or invoice-based facility for working capital, and asset finance for specific equipment.

Lenders at this level include banks, specialist business lenders, asset-based lenders and private debt funds. Our page on private debt and direct lending explains how non-bank funds approach mid-sized loans, often with more flexible structures in exchange for a higher cost. Purely unsecured lending of £1 million is uncommon and generally limited to businesses with substantial, consistent profits.

A £1 million loan typically suits a business with a long record of profitable trading, a capable finance function, meaningful assets and a purpose that clearly increases value. Common situations include:

• Buying a competitor or completing a business acquisition, where the lender looks at the combined group's earnings
• Purchasing a significant freehold, such as a factory, warehouse or healthcare premises
• A major capital investment programme across machinery, vehicles and premises
• Refinancing several lenders into a single, better-structured facility
• Funding growth for a business that has outgrown its existing facilities

It is generally not available to early-stage businesses, businesses without reliable management information, or where the debt would leave too little headroom. If the gap is too large for senior debt alone, mezzanine finance or equity may be needed alongside it.

The businesses that raise seven-figure facilities most smoothly usually spend a few weeks preparing before any lender sees the deal. Useful steps include:

• Check the register. Search Companies House for charges registered against every group company, and confirm which lenders hold security and on what.
• Tidy the group. Simplify the structure where you can, settle or document intercompany balances and make sure directors' loan accounts are clear.
• Strengthen reporting. Monthly management accounts that close promptly, with a balance sheet and cash flow as well as profit and loss, give lenders confidence in your figures.
• Know your assets. Recent valuations of property, an up-to-date asset register and an aged debtor analysis help lenders size asset-based tranches quickly.
• Line up advisers. Instruct solicitors and accountants with experience of finance transactions early, so documents and reports do not hold up completion.
• Agree internally. Shareholders and directors should agree the purpose, the maximum borrowing and the personal commitments they are prepared to give before negotiations start.

A £1 million facility typically takes several weeks to a few months from first approach to drawdown, depending on complexity. Indicative terms can sometimes be agreed within a few working days in straightforward cases, but credit approval, due diligence, valuations and legal documentation follow.

The main factors are the completeness of your information, the number of facilities and lenders involved, any property or acquisition element, and whether existing lenders need to be repaid or agree priorities. Where there is a fixed deadline, such as an acquisition completion date, building in contingency is essential.

Security for a £1 million loan is usually a package rather than a single charge. It commonly includes:

• A debenture over the company and its subsidiaries, with cross-guarantees between group companies; see our guide to debentures and fixed and floating charges
• Legal charges over commercial property
• Specific security over debtors, stock or plant for asset-based tranches
• Personal guarantees, which at this level are sometimes capped, limited in time or replaced by stronger business security
• Where more than one lender is involved, an intercreditor or priority agreement setting out who ranks first

Our page on secured business loans explains the security process in more detail.

The cost of a £1 million facility includes interest, fees and third-party costs, and the total cost of arranging and maintaining the facility is what to compare.

• Interest, often as a margin over a reference rate, with the option to fix some or all of it through a fixed-rate loan or hedging
• Arrangement fees on completion, and sometimes exit fees with non-bank lenders
• Commitment or non-utilisation fees on undrawn revolving or staged amounts
• Due diligence, valuation, legal and monitoring fees, including the lender's own costs
• Ongoing charges such as annual reviews, audits on asset-based facilities and covenant amendment fees
• Break costs if fixed-rate funding is repaid early

Several routes can provide or supplement seven-figure funding:

• Asset-based lending advances against debtors, stock, plant and property, and can grow with the business.
• Commercial mortgages for buying or refinancing owner-occupied premises over long terms.
• Structured finance for complex deals combining senior debt, mezzanine and other layers.
• Unsecured business loans, generally only as a smaller top-up alongside secured funding at this level.