£250,000 business loan: how lenders assess a quarter-million request

A £250,000 business loan is normally a term loan repaid over several years, though at this size it is just as often a combination of facilities as a single loan. The lender advances the funds, and you repay in monthly instalments of capital and interest, sometimes with an initial interest-only period while a project beds in.

What makes £250,000 different from smaller amounts is that many unsecured lenders are near the top of their appetite. Some will lend this much to a business with strong, consistent profits; others cap their unsecured exposure lower. As a result, a £250,000 requirement is often met in one of three ways:

• One unsecured loan from a lender comfortable at this size, usually for a well-established, profitable business
• One secured loan, backed by a debenture, property or other assets, which can allow a longer term
• Two or more facilities from different lenders, or one lender structuring the amount into separate parts, each sized to that lender's appetite

The main change at £250,000 is that the lender's potential loss is large enough to justify a proper look at the balance sheet, the security and the people, not just the bank statements. In practice, that means:

• Fewer lenders. Some online and unsecured lenders that are comfortable at £100,000 stop short of this figure, so the field narrows and lender selection matters more.
• Management accounts become essential. Filed accounts alone are rarely enough; lenders want to see the current year.
• Security moves up the agenda. Even unsecured offers often come with a debenture, and secured lenders will want a valuation.
• Structure becomes a tool. Interest-only periods, staged drawdowns and splitting the amount between facilities are used far more often.
• Existing lenders get involved. Consents, priority agreements and refinancing of older debt are more common.
• The story matters. A credit summary that explains the business and its plan carries real weight with the underwriter.

A loan of this size typically suits a business with several years of accounts, turnover well above the amount being borrowed and profits that cover all repayments with room to spare. Typical uses include:

• Buying a competitor, a customer book or a retiring partner's stake
• Opening a new branch, depot or production unit
• Funding the working capital for a significant new contract
• Consolidating several existing loans and advances into one manageable facility
• A major refurbishment or fit-out alongside new equipment

It is less likely to be available to young businesses, businesses with uneven or declining profits, or those already carrying significant debt. Where the business is smaller, a £100,000 business loan or a staged approach may be more realistic.

A £250,000 loan typically takes longer than a smaller one because more information is reviewed and security may need documenting. Unsecured lenders can still give an indicative decision within a few working days in straightforward cases, but full approval and completion often take a few weeks.

Where property is taken as security, allow time for a valuation and legal work, which depends on the lender, the property and how quickly solicitors move. Deals with complications, such as an existing lender's charge to release or a title issue to resolve, take longer still. In one completed case, a £212,300 consolidation facility was completed once a property-title issue had been resolved, which shows how security matters can set the pace.

At £250,000, most lenders will want personal guarantees and many will also take security over business assets. Common arrangements include:

• Personal guarantees from the directors, sometimes limited to a fixed amount or a proportion of the loan
• A debenture giving the lender fixed and floating charges over the company's assets; see our guide to debentures and fixed and floating charges
• A legal charge over property, business or personal, for secured business loans
• Asset security where part of the requirement is equipment or vehicles

Where security is limited, some lenders can support the facility with the British Business Bank's Growth Guarantee Scheme. The scheme gives the lender a partial guarantee, while the business remains fully liable and personal guarantees may still be requested. If you would prefer to limit your personal exposure, our page on personal guarantee insurance explains one way to manage it.

The cost of a £250,000 loan is driven by interest, fees and the security involved, and the total cost over the term is the figure to compare.

• Interest, fixed or variable, on a reducing balance or calculated as a flat charge
• Arrangement fees, usually payable on completion
• Valuation and legal fees where property or a debenture is taken, normally paid by the borrower
• Early repayment charges, which vary widely and matter if you may refinance
• Non-utilisation or renewal fees on any revolving element

Splitting a requirement across several facilities can increase the total fees, so the benefit of the structure needs weighing against the cost.

A term loan is not the only way to raise £250,000, and alternatives can sometimes provide more funding with less personal risk:

• Invoice finance, where the amount grows with your sales ledger rather than being fixed.
• Asset finance or asset refinancing for equipment you are buying or already own.
• A commercial mortgage if the purpose is buying premises.

If the requirement is likely to grow, our £500,000 business loan page explains what lenders expect at the next level.