Best Business Loans

What are typical business loan terms for SMEs (e.g., months)?

Short answer: typical business loan terms for UK SMEs

Most UK SMEs see unsecured term loans run from 6 to 60 months, while secured or asset-backed options can stretch to 24 to 84 months depending on the asset life. Short-term working capital facilities typically sit between 3 and 24 months, and revolving credit lines are often reviewed annually with facility durations of 6 to 24 months.

Invoice finance is normally a rolling facility with a 12-month contract and monthly renewals, while merchant cash advances are commonly repaid over 6 to 12 months through card takings. Under the British Business Bank’s Growth Guarantee Scheme, many lenders offer term loans and asset finance up to 6 years, with overdrafts and invoice finance up to 3 years.

The “right” term balances affordability and total cost: longer terms lower monthly repayments but generally increase overall interest paid. Lenders also consider asset life, cash flow stability, security, and sector risk when proposing term length.

Typical term ranges by finance type and use case

Unsecured business term loans

Typical terms are 6–60 months, with many SME loans clustering at 12–36 months. These suit working capital, marketing, small refurbishments, or bridging occasional cash gaps.

Repayments are usually monthly and amortising, often on fixed rates. Lenders may ask for a personal guarantee, especially for shorter trading history or thin security.

Secured term loans

Where property or other strong collateral is pledged, terms can range from 24–84 months, and sometimes longer in specific cases. These are used for larger capital projects and refinancing existing borrowing.

Longer terms can improve affordability, but valuations, legal work, and security checks add time and cost. Prepayment options vary, so check early settlement clauses.

Asset finance (hire purchase and finance lease)

Asset finance usually matches the useful life of the asset: 24–60 months for vehicles and equipment, and 36–84 months for heavy machinery. Seasonal or structured profiles (step-up or step-down) may be available.

Hire purchase often includes a nominal option-to-purchase fee, with potential balloon payments to reduce monthly outgoings. Finance leases focus on rental use and may include secondary rental periods.

Invoice finance (factoring and invoice discounting)

Invoice finance is typically a rolling facility with a 12-month contract, renewed annually. In-practice, individual invoices settle within the customer’s payment terms, so the finance duration per invoice is usually 30–90 days.

It suits B2B firms with trade credit, particularly in manufacturing, logistics, and services. Reviews are routine, and concentration limits or debtor quality can influence the facility size.

Business overdrafts and revolving credit facilities

Overdrafts and revolving credit lines are commonly reviewed every 12 months, with overall facility durations of 6–24 months. Draw, repay, and redraw flexibility supports variable cash cycles.

Interest is paid on funds used, with potential arrangement or renewal fees. Covenants or utilisation expectations may apply with some providers.

Merchant cash advance (MCA)

MCA terms generally fall between 6–12 months, repaid via a fixed percentage of daily card sales. It is aligned to revenue, so repayments adjust with turnover.

MCAs can be fast to arrange and useful for hospitality, retail, and eCommerce. Total repayable is agreed up-front, instead of headline interest rates.

Growth Guarantee Scheme (British Business Bank)

Under current parameters, many accredited providers offer term loans and asset finance up to 6 years. Overdrafts and invoice finance facilities are typically up to 3 years, subject to eligibility and lender policy.

This is a lender-delivered scheme with government support, but borrowers are always liable for 100% of the debt. Availability varies and criteria apply.

What determines your loan term?

Purpose and asset life

Match the term to the economic life of what you are funding. Working capital often suits 6–24 months, while long-life equipment can justify 36–84 months.

This helps avoid overpaying for short-term needs or underfunding long-term investments. It is a core underwriting principle for most lenders.

Cash flow profile and seasonality

Stable, predictable cash flow supports longer terms due to repayment certainty. Seasonal or cyclical income may require structured or seasonal profiles.

Lenders may accept reduced off-season repayments and higher in-season payments. This can smooth cash pressure without overextending the total term.

Security, guarantees, and credit strength

Stronger security or asset backing can unlock longer terms and potentially sharper pricing. Where security is limited, lenders may cap terms to mitigate risk.

Personal guarantees are common for SMEs, especially with unsecured lines. Strong financial performance and credit history can widen term options.

Amount borrowed and affordability

Larger loan sizes may need longer amortisation to keep repayments manageable. Affordability tests assess DSCR, trading history, and cash projections.

Lenders will stress test interest rates and revenues. Your requested term must pass these tests for approval.

Sector dynamics and lender appetite

Appetite shifts by sector and economic conditions. Asset-intensive industries often secure longer terms via asset finance.

Service sectors may lean on invoice finance, overdrafts, or unsecured loans. Different providers optimise for different industries.

Scheme rules and facility type

Government-backed frameworks impose maximum terms by product category. Facility types also dictate structure: revolving credit is periodic; term loans amortise.

Your adviser will align your needs with lenders’ current criteria. Facility selection often precedes final term setting.

How term length changes cost and cash flow

Monthly affordability vs total cost

Longer terms decrease monthly repayments, easing cash flow strain. However, they generally increase the total interest paid over the life of the loan.

Shorter terms reduce total cost but compress cash flow. The right balance depends on your working capital cycle and growth goals.

Illustrative scenarios (figures are examples only)

A £100,000 unsecured loan over 12 months yields high monthly repayments but the lowest overall interest.
The same loan over 36 months lowers the monthly outgoing, helping cash flow, but increases the cumulative cost.
Asset finance with a balloon reduces monthly rentals and defers some cost, suited to assets with predictable resale value.

Always check early repayment policies. Some lenders allow partial prepayments without penalty, while others charge fees.

Repayment structures to consider

Level monthly amortisation: predictable budgeting; standard for many loans.
Seasonal profiles: align peaks and troughs to your trading calendar.
Interest-only periods: rare for SMEs but may appear in specific secured cases.
Balloon payments: common in hire purchase for vehicles and equipment.

Where cash flow is volatile, consider a revolving facility or invoice finance over a rigid term loan. Flexibility can prevent stress and late fees.

Choosing the right term and next steps with Best Business Loans

A practical approach to selecting a term

Define the purpose clearly: working capital, equipment, refurbishment, or growth investment.
Map cash inflows: ensure repayments fit your revenue cycle with headroom.
Match term to asset life: avoid financing short-term needs over long horizons.
Stress test at higher rates: assess resilience to cost changes.
Check early repayment terms: flexibility can save interest if you repay sooner.

Gather recent management accounts, filed statutory accounts, bank statements, and a summary of existing borrowing. Clear documentation helps lenders justify your requested term.

How Best Business Loans helps (we’re an introducer, not a lender)

Best Business Loans is an independent introducer using AI to match UK SMEs with suitable lenders and brokers. We do not offer loans directly or provide advice; we connect you with providers based on your profile and requirements.

Our process is simple: submit a Quick Quote, our system analyses your details, and we introduce relevant providers. You then compare terms and choose the route that fits your cash flow and objectives.

Who we support and what to expect

We typically help established limited companies and LLPs across sectors like construction, manufacturing, logistics, hospitality, and professional services. We don’t currently support start-ups, sole traders, franchises, property finance, or commercial mortgages.

We aim to help you identify realistic term options across products such as unsecured loans, asset finance, invoice finance, and revolving facilities. You remain in control at every stage, with no obligation to proceed.

Start your Quick Quote

If you need guidance on typical terms for small business loans, our platform can connect you with providers who understand your sector. It’s fast, free to enquire, and designed to save you time.

Submit your Quick Quote to get matched with lenders or brokers who may support your preferred term and structure. There are no guarantees, but you’ll see options aligned to your use case and cash flow.

Compliance and transparency notice

Information on this page is for general guidance only and does not constitute financial advice. Eligibility, terms, and costs depend on your circumstances and lender criteria, and are subject to change.

Best Business Loans operates as an independent introducer, not as a lender or credit broker, and does not provide regulated advice. All promotions aim to be fair, clear, and not misleading, in line with UK standards.

FAQs

What is the most common SME loan term? Many unsecured SME loans fall between 12–36 months, balancing affordability and total cost.

How long can asset finance run? Typical terms are 24–60 months, extending to 84 months for heavy or long-life assets.

Are overdrafts “term” products? They are revolving facilities, often reviewed annually, with overall durations commonly 6–24 months.

What about government-backed terms? Growth Guarantee Scheme options often include loans and asset finance up to 6 years, and overdrafts/invoice finance up to 3 years, subject to lender policy.

Can I repay early? Many facilities allow early settlement, sometimes with fees; always check your agreement for specific terms.

Key takeaways

Unsecured loans: 6–60 months, often 12–36 months for SMEs.
Asset finance: 24–84 months, aligned to asset life and resale value.
Invoice finance: Rolling with 12-month contracts; invoices settle in 30–90 days.
Overdrafts/revolving: Typically 6–24 months with annual reviews.
Merchant cash advance: 6–12 months via card takings.
Growth Guarantee Scheme: Loans/asset finance up to 6 years; overdraft/invoice finance up to 3 years.

Updated: October 2025.