£100,000 business loan: what lenders need to see

A £100,000 business loan is usually a term loan: the lender pays the full amount at the start and you repay capital and interest in fixed monthly instalments over an agreed term, often somewhere between one and six years. Some lenders offer slightly longer terms, and the right length depends on what the money is for and how quickly it pays back.

At this size, borrowers often have a real choice between an unsecured loan backed by a personal guarantee, a loan secured on business assets, or a product built around a specific asset or income stream, such as equipment finance or invoice finance. The best answer depends on the purpose. Replacing a van and a machine points towards asset finance. Funding a new contract, stock or a marketing push points towards a term loan or a revolving facility.

A £100,000 loan typically suits a trading business with at least two years of accounts, stable or growing turnover and profits that comfortably cover the new repayments alongside existing commitments. Common uses include:

• Taking on a larger contract that needs staff, materials or vehicles before the first invoice is paid
• Refurbishing premises or opening a second site
• Buying stock in bulk ahead of a busy season
• Investing in new systems, equipment or a website
• Buying out a small competitor or a retiring partner's share
• Replacing several expensive short-term facilities with one longer loan

It is harder for a business that has traded for less than a year, has made losses without a clear recovery, or whose turnover is small relative to the amount requested. Lenders tend to be cautious where £100,000 is a large share of annual sales, because the repayments would take too much of the monthly cash flow. In those cases a smaller first facility, or our page on small business loans, may be the better place to begin.

Unsecured lenders working from bank statements and accounts can give decisions within a few working days in straightforward cases. Funds typically follow once the agreement and any guarantee are signed and the lender's checks are complete.

Secured loans, deals that need a valuation or legal charge, and applications with a story to explain take longer, often a few weeks. Timescales depend on the lender, how complete the information is and how quickly third parties, such as accountants or solicitors, respond. Our guide to how long a business loan takes sets out the stages.

A £100,000 loan is often available unsecured, but almost always with a personal guarantee from the directors. Unsecured means the lender does not take a charge over a specific property; the guarantee means the directors can be personally liable if the business cannot repay.

Lenders may ask for more where the risk is higher:

• A debenture over the company's assets, giving the lender a fixed and floating charge
• A charge over business or personal property for secured business loans, which may allow a longer term or more favourable pricing
• Equipment or vehicles as security, through asset finance

Some lenders can offer facilities with a partial government guarantee through the British Business Bank's Growth Guarantee Scheme. The guarantee protects the lender, not the borrower, and the business remains fully liable. Before signing any guarantee, read our guide to personal guarantees.

Most declines at this size come from a mismatch between the request and the evidence, rather than from the business being unfundable. The common causes are:

• The amount is too large for the turnover. A lender may be comfortable at £60,000 but not £100,000. Asking for what the purpose genuinely needs, or splitting it between a loan and asset finance, often solves this.
• Out-of-date figures. Accounts that are nearly two years old, with no management accounts, leave the lender guessing about current trading.
• Unexplained bank activity. Large transfers to directors, gambling transactions, returned direct debits or regular overdraft excesses all raise questions. A short note explaining one-off events helps.
• Too many recent facilities. Several short-term loans or cash advances taken in quick succession can suggest cash flow strain, even when each was used sensibly.
• A vague purpose. "Working capital" on its own is weaker than a clear plan showing what the money buys and how it is repaid.
• Applying to the wrong lender. Each lender has its own sector, size and credit appetite, and a decline from one says little about the rest.

The cost of a £100,000 business loan is usually made up of interest plus a small number of fees, and comparing the total is more important than the headline rate.

• Interest. Fixed or variable, and either charged on the reducing balance or calculated up front as a flat charge. The two methods give very different total costs for the same headline figure.
• Arrangement fee. Some lenders charge a fee on completion, deducted from the advance or added to the loan.
• Early repayment charges. Some loans can be settled early with little penalty; others charge a fixed amount or a period of interest.
• Security costs. Valuation and legal fees where property is taken as security.

A single loan is not always the right tool. Depending on the purpose, consider:

• Asset finance for vehicles, machinery and equipment, secured on the asset itself.
• Invoice finance if cash is tied up in unpaid customer invoices.
• A revolving credit facility if you need to draw and repay repeatedly.
• A combination, such as a smaller term loan plus asset finance, which can spread risk across lenders and reduce the guarantee required.

If £100,000 turns out to be too little, our pages on a £250,000 business loan and a £500,000 business loan explain how requirements change as the amount rises.