Rates

Business loan rates:
the average, and why yours differs

The Bank of England puts the average effective interest rate on new bank loans to small and medium-sized businesses at 6.63% in August 2026. Treat that as a reference point rather than a quote. It is weighted towards secured, relationship lending by the big banks, and unsecured money from the specialist lenders most small companies use is usually priced above it. Where you land comes down to the handful of things set out below.

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What the official average actually measures

Each month the Bank of England publishes the effective interest rate UK banks charge on new lending to businesses. In its Money and Credit release for August 2026, published on 29 September, the rate on new loans to SMEs edged up to 6.63% from 6.61% in July, while the rate on new loans to all private non-financial companies fell to 5.57%. Bank Rate itself was 3.75% as at 10 October 2026.

Three things keep that average lower than most small firms are offered. It covers banks only, so the specialist and online lenders that do much of the unsecured lending under £500,000 sit outside it. A large share of bank lending is secured on property or assets, which is cheaper by design. And it is an interest rate, so arrangement and documentation fees are not in it at all.

So the useful reading is this: if a secured bank loan is open to you, something near the average is realistic. If you are borrowing unsecured, quickly, on a couple of years of accounts, expect a higher number and judge it on the total in pounds.

What sets your rate

Five things the lender is pricing

How long you have traded, and what you have filed
Two or more years of filed accounts lets a lender price you on evidence. Six months of statements lets it price you on hope, and it charges for the difference.
Whether anything stands behind the loan
Security over property or equipment lowers the price because it lowers the loss if things go wrong. A director guarantee does some of the same work on unsecured lending. What security is worth in pounds.
The term, and which side of a year it falls
Under twelve months, most lenders quote a monthly rate. Over that, an annual one. The two are different units, and the move between them can make a two-year loan cheaper in total than a one-year one.
How the bank account behaves
Steady income, no bounced direct debits and a balance that is not parked at its limit do more for the price than sector or postcode. It is the most current evidence a lender has.
How much you ask for against turnover
A modest request against strong turnover is easy to price. Ask for a third of a year’s sales and the lender prices in the strain on the repayments.

The full cost breakdown, fees included →

How each type of finance is priced

Illustrative ranges only, to show the unit each product is quoted in. No lender is named and your own price is set by the lender’s assessment.

Type of financeQuoted asIllustrative range

Unsecured loan, two to six yearsAn annual rate on what you still oweAbout 7% to 24% a year

Short-term loan, up to twelve monthsA monthly rateAbout 2% to 6% a month

Revolving credit lineA fee on each drawdown, set by the termAbout 2% for one month to 16% for twelve

Revenue-based financeA factor rate: a multiple of the advanceFor example 1.15 to 1.3

Invoice financeA service charge plus a margin over Bank RateFor example 0.5% to 1.5% of turnover, plus interest on what you draw

These rows are not comparable with each other by eye, which is the point of the middle column. A 3% monthly rate and a 3% service charge measure entirely different things.

The same £50,000 over three years, at three rates

Repaid monthly on the reducing balance. Illustrative rates across the range a limited company might be offered, to show how quickly a few points become thousands of pounds.

At 8% APRAt 14% APRAt 20% APR

Monthly repayment£1,560.39£1,688.91£1,816.95

Total interest£6,173.93£10,800.62£15,410.13

Total repaid£56,173.93£60,800.62£65,410.13

Before fees. Each six points on the rate adds roughly £4,600 to the bill on this loan, but only about £130 to the monthly payment, which is why a monthly figure on its own is a poor guide to price.

APR, flat rates and the fees that move the number

An APR is the annual cost of the money with the compulsory fees folded in. That matters more than it sounds. Take £50,000 at 10% over three years with a 3% arrangement fee taken off the advance: you receive £48,500 but repay as though you had £50,000, and the true annual cost comes to about 12.3%. Two quotes at the same headline rate can differ by more than two points once the fee is counted.

Some lenders and many asset finance quotes still use a flat rate, charged on the original amount for the whole term. A flat rate understates the cost by close to half, so a 6% flat quote is nearer 11.7% as an APR over three years. Our flat rate to APR calculator does the conversion for any term, and flat rate vs APR explains why the two cannot be compared.

Fixed or variable is the last choice. Most unsecured lending to small companies is fixed for the term. Variable rates, more common on secured and bank lending, are usually set as a margin over Bank Rate, so they move when the Bank does. The next decision is due on 5 November 2026.

Tell us the amount and the term and we will show you the rate you would actually be offered, in pounds.

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FAQ

Common questions

What is the average business loan interest rate in the UK?

The Bank of England’s figure for new bank loans to SMEs was 6.63% in August 2026, and 5.57% for new loans to all private non-financial companies. It is an average of bank lending, much of it secured, so it is a floor for comparison rather than a forecast for an unsecured loan. The Bank’s release.

Why is my quote higher than the Bank of England average?

Usually because you are being quoted unsecured money from a specialist lender, which the bank average does not include, and because the average leaves out fees. A short trading history, a request that is large against turnover or a busy bank account all push the price up as well.

Are business loan rates fixed or variable?

Most unsecured loans to small companies are fixed for the whole term, so the repayment never changes. Variable rates are more usual on secured and bank lending and are set as a margin over Bank Rate. Fixed costs a little more for the certainty; variable passes Bank Rate moves straight to you, in both directions.

Will my rate fall if the Bank of England cuts Bank Rate?

Only if the loan is variable. A fixed-rate loan already signed stays where it is. New lending does tend to follow Bank Rate over time, but for unsecured small-business borrowing the lender’s view of your risk moves the price far more than a quarter point on Bank Rate.

Does an arrangement fee change the rate I am really paying?

Yes. A fee taken from the advance means you pay interest on money you never received. On £50,000 at 10% over three years, a 3% fee lifts the true annual cost to about 12.3%. Always compare the APR or, better, the total repaid.

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