Business Loans UK 2026: When Invoice Finance Wins Instead
A business loan gives you a lump sum that you repay in fixed instalments, with interest, over an agreed term. It suits one-off costs such as equipment, a vehicle or a refit. Invoice finance is different: a lender pays you most of each unpaid invoice now, and is repaid when your customer pays. It suits a business that invoices other businesses and waits to be paid. The amount, rate and term of either depend on the lender and your business.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam was managing director of Penny, a UK invoice finance business, from July 2020 to November 2023. His career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library. Career record.
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When a business loan fits
- A one-off purchase. Equipment, vehicles, premises, a refit or new systems. You know the amount and want to spread the cost.
- Buying another business. A loan can fund the purchase price.
- Steady income to cover repayments. The repayment is the same each month whatever your sales do.
- You sell to the public. Without invoices to other businesses, invoice finance does not apply.
When invoice finance fits
- You wait to be paid. If customers pay in 30 to 90 days but wages and suppliers do not wait, invoice finance pays you sooner on each invoice.
- Your sales are growing. The amount you can draw goes up as you invoice more, without applying for a new loan.
- Your customers are stronger than your own accounts. Lenders look closely at how reliably your customers pay, not only at your business.
Side by side
| Business loan | Invoice finance | |
|---|---|---|
| What you get | A lump sum | Most of each unpaid invoice, as you raise it |
| How you repay | Fixed instalments over a set term | When your customer pays the invoice |
| What you pay | Interest, sometimes with fees | Usually a service fee plus a discount charge |
| Security | Some loans are unsecured; others need assets or a personal guarantee | Usually a debenture (a legal charge over company assets, including your invoices); some lenders also ask for a personal guarantee |
| Amount available | Fixed when you borrow | Goes up and down with your unpaid invoices |
What lenders publish
Few lenders publish fixed prices, so you need a quote. Two online lenders do give starting rates: Funding Circle says business loan rates start from 6.9% a year, and iwoca says rates start at 1.5% per 30 days, charged on your outstanding balance (fundingcircle.com, iwoca.co.uk, checked 1 November 2026). A starting rate is the lowest on offer; your rate depends on your business. Note that one is a yearly rate and the other a monthly one, so compare the total you would repay. Invoice finance lenders mostly quote per facility: see the list of UK invoice finance companies for what each publishes.
Can I have both?
Yes, many businesses do: a loan for a one-off purchase and invoice finance for day-to-day cash. Both lenders will want to know about the other, and if both take security they need to agree who has first claim. See can I have invoice finance and an overdraft, which covers the same issue.
Government-backed schemes
The British Business Bank runs government-backed schemes, including Start Up Loans for new businesses and the Growth Guarantee Scheme, which gives lenders a partial government guarantee. Terms change, so check the current rules on its website.
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