Interest Free Business Loans
Wouldn’t it be great if you didn’t have to pay interest on a business loan? Well, surprisingly, there are some options out there which mean you don’t have to pay interest rates.
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What is an interest-free business loan?
As you might have guessed, an interest-free loan is a type of loan that you don’t pay interest on. Most traditional business loans are repayable with interest. And interest is the element that makes the loan more expensive with typical interest rates for business loans ranging between 6 and 15%.
So finding a loan without interest can mean significant savings on your part. With that in mind, here are some interest-free business loans worth considering.
Types of interest-free business loans
Loan from family and friends
Asking for money from family and friends might not be your first choice when looking for business finance, but it can be a very cost-effective way to access the funds you need to grow. Don’t forget to draw up a repayment plan with your relative or friend to make sure you’re both on the same page r.e. repayment amounts, loan term and loan amount.
Personal funding
If you have the funds in your personal savings, you can consider investing them in your own business. Although you’re depleting your savings pots, there are no ties or interest fees with this option — you can spend your money how you like.
Angel investment
A type of equity finance, angel investors usually invest their own money into your business in return for ownership equity. If you don’t want to give away equity in your business, this option might not be right for you. But if you’re willing to explore a little further, angel investors can give you the opportunity to access significant capital investment alongside investor experience, which can help you enter new markets and attract new audiences.
Government interest free loans for businesses
There are plenty of government schemes and charitable organisations offering business grants for startups and established businesses. Although there can be certain stipulations on how you spend the money, accessing a grant can give you the cash injection you’ve been looking for.
Be aware, though, interest free business loans from the government or charities can be very competitive and can have a long, drawn-out process, so if you’re looking to access a quick business loan, this might not be the path for you.
Islamic business finance
The Sharia law governs Islamic business loans, and that law states that money shouldn’t be made from money — this means Islamic banks do not charge interest on their business loans. At the heart of Islamic business finance is the concept of risk sharing, which means both the lender and borrower can contribute money into the business, both taking a risk.
There are other types of Islamic financial arrangements connected with Islamic business finance — learn more about Islamic business loans. Please note, we do not have any lenders on our panel that offer Islamic finance.
Revenue-based finance
We’ll prefix this with a quick note — you can pay application fees and other fees on this type of loan, but it’s not an ongoing interest rate. A revenue based loan is finance based on your expected revenue and is repaid as a percentage of that revenue.
For example, you take out a revenue based loan for £50,000, and you agree to repay a percentage of the loan each month, let’s say 10%. Month one, your revenue is £4,000, so you pay £400. The following month you earn £20,000, you repay £2,000, and so on.
Interest Free Business Startup Loans
There are plenty of interest-free loan options and government schemes available to startup businesses, so if you have a great idea but lack the funds to get it off the ground, consider using our free business grant finder tool to find eligible grants to suit your needs.
As a startup you can incur a lot of setup costs, but you might find not all lenders are happy lending to brand-new businesses as they can lack a good credit score or trading history, that’s why exploring alternative finance solutions might be a good idea.
Do I need an interest-free business loan?
Whether you need one or not depends on the type of finance you're looking for. If you want to grow your business quickly, and therefore require working capital now, an interest-free loan might not be as accessible as a typical business loan.
You can receive your business loan in 48 hours, but some interest-free options can take a little longer to process. For example, you’d have to find a willing angel investor or apply for a business grant.
How to get an interest-free loan
The different types of loans we’ve outlined above have different application processes, so for specific details about application processes, we recommend searching for each type online to view your options in more detail.
We can help you secure a revenue based business loan or any other type of business loan. We work with UK-accredited lenders to help small businesses find and apply for eligible finance to grow their business.
Our free loan comparison tool makes it easy to compare all your options in one place, and you can have a quote in a matter of seconds. Compare business loans.
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Adrian T
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Amazingly fast, efficient service, minimal paperwork. So much faster than my business bank of twelve years.
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