Unsecured business loans

If you want a business loan without offering security, an unsecured business loan might be just what you’re looking for. Unsecured loans are a great funding option for businesses that don’t own many assets, businesses that would prefer not to offer security, or any company that’s growing fast and needs finance quickly. With a variety of lenders on the market able to offer unsecured loans up to £250,000, there are options for a wide variety of situations. Read more to find out how an unsecured loan could help your business.

Get working capital

Unsecured business loans

If you want a business loan without offering security, an unsecured business loan might be just what you’re looking for.

Unsecured loans are a great funding option for businesses that don’t own many assets, businesses that would prefer not to offer security, or any company that’s growing fast and needs finance quickly.

With a variety of lenders on the market able to offer unsecured loans up to £250,000, there are options for a wide variety of situations. Read more to find out how an unsecured loan could help your business.

What are unsecured business loans?

An unsecured business loan is a loan that doesn’t require security. A secured loan uses assets as security — which means if things don’t work out, the lender can sell the assets to recoup the cost of the loan. The question of ‘secured vs. unsecured loans’ is really all about risk for the lender.

Business loans without security

To consider a secured loan, you have to have security in the first place. But if you don’t have any assets, you’ll need to get a loan without security — an unsecured business loan.

These days, more and more companies are based on intangible assets — for example, if you’re a software or consultancy company you’re likely to have a rented office, a few computers, and not much else in terms of tangible assets. That’s where unsecured business loans come in.

In the world of alternative finance there are lots of lenders who can lend upwards of £100,000 unsecured — even up to £250,000 in the right circumstances. Because there’s no security, trading history becomes more important and the lender might ask for a personal guarantee too.

Unsecured loans: considerations

  • Almost always quicker — no valuations necessary, legal process simpler.

  • No assets required — more accessible type of finance.

  • Up front cost lower, or sometimes not required at all.

  • Overall cost usually higher, because the lender has a higher risk.

What is a personal guarantee on an unsecured business loan?

Sometimes lenders will ask for a personal guarantee from a company director who wants an unsecured loan — lenders occasionally prefer this arrangement because it lowers their level of risk. Although personal guarantees can feel like a big commitment, they often help companies secure higher levels of funding. Find out more about personal guarantees and the law.

Can I get an unsecured business loan with no personal guarantee in the UK?

Although lenders will sometimes require a personal guarantee from the company director when issuing an unsecured business loan, in some cases no personal guarantee is required. However, the loan may be more expensive as a result. 

What are unsecured business loans used for?

Unsecured business loans can be used for a variety of purposes. The application process is generally simpler and usually speedier than that of a conventional business loan. 

Examples of what business loans are used for include:

  • Cash flow boost

  • Business growth

  • Stock or asset purchase

  • One-off costs

  • Premises expenses

What are unsecured business loans lending criteria?

Different business types can apply for an unsecured business loan, including limited companies, limited liability partnerships and sole traders. Specific eligibility criteria points will vary according to the lender. As previously mentioned, guarantees may be required and you’ll have to meet the lender’s minimum annual turnover specification.

How does an unsecured loan compare to a term loan?

When you take out a secured loan, the lender will require you to provide collateral such as machinery, equipment or property. An unsecured loan doesn’t require security. However, this differentiation impacts interest rates, borrowing terms and how much you can borrow.

What information do I need for my unsecured business loan application?

As with any type of finance, it helps to have the necessary documentation to hand before you apply. You’ll be asked to provide your company name and type of business entity, names and addresses (last three years) for directors, records of accounts for the last two years and an explanation of how you intend to use the funds. 

What happens if I default on an unsecured loan?

Even if you don’t use collateral to secure your loan, there are still consequences if you don’t pay. For example, the lender can take legal action against you to reclaim some or all of the loan. 

What is the main advantage of an unsecured loan?

Simply put, unsecured loans can make it easier for businesses to borrow money because the lender doesn’t require security from the business. However, you should bear in mind that unsecured loans often come with higher interest rates because the risk to the lender is greater. 

Are car loans unsecured debt?

No. Car loans are actually considered secured loans because the lender retains the title of the vehicle and can take it back if the loan is not repaid. Credit cards can be unsecured, as can personal loans.

How do I know if my credit card is secured or unsecured?

A secured credit card requires a deposit, whereas an unsecured credit card doesn’t.