Unsecured Business Loans
For many small and medium-sized businesses (SMEs) in the UK, access to finance is crucial for growth, working capital, or covering unexpected costs. But not every business has assets to secure against borrowing, and even those that do may prefer not to risk them. That’s where unsecured business loans come in.
In this guide, we’ll break down what they are, who qualifies, and whether they could be the right option for your business..
What is an Unsecured Business Loan?
An unsecured business loan allows you to borrow money without providing physical assets (such as property, vehicles, or equipment) as collateral. Instead, lenders assess the financial strength of your business – such as turnover, profitability, and credit history – to decide how much they’re willing to lend.
Repayments are usually made in fixed monthly installments over a set term, much like a personal loan, giving businesses predictable cash flow planning.
How They Differ from Secured Loans
- Collateral: Secured loans require assets as security; unsecured loans do not.
- Speed: Because no valuations or charges need to be placed against assets, unsecured loans are typically quicker to arrange.
- Risk: With unsecured borrowing, lenders take on more risk – which often means higher interest rates or smaller maximum loan sizes compared to secured options.
Who Qualifies (and Typical Lender Criteria)
Eligibility varies between lenders, but most will look at:
- Trading history: Typically at least 12–24 months in business, though some providers cater to younger companies.
- Turnover: Many lenders want to see a minimum annual turnover, often £100,000+.
- Credit profile: Both the business and directors’ credit histories are considered.
- Affordability: Lenders will want evidence that repayments can be comfortably met.
Some lenders may also ask directors to provide a personal guarantee, even though no physical assets are at risk.
Pros and Cons
Pros:
- No need to offer property or assets as security
- Faster approval and access to funds
- Flexible use of loan (working capital, marketing, expansion, etc.)
- Predictable monthly repayments
Cons:
- Higher interest rates than secured loans
- Lower maximum borrowing limits
- Stronger focus on business creditworthiness
- Personal guarantees often required
Alternatives to Unsecured Loans
If unsecured finance doesn’t fit, there are other options worth exploring:
- Invoice Finance: Unlock cash tied up in unpaid invoices.
- Asset Finance: Spread the cost of vehicles, machinery, or equipment.
- Secured Business Loans: Larger loan sizes, often at lower interest rates, using assets as security.
- Revolving Credit Facilities: Flexible access to funds as and when needed.
Each has its place depending on your cash flow needs, sector, and growth plans.
FAQs
Can startups get unsecured business loans?
It’s more challenging, but possible. Lenders may require strong personal credit, a detailed business plan, and a personal guarantee. Some government-backed schemes may also support startups.
How much can you borrow without security?
Amounts vary widely. For many SMEs, unsecured loans range from £10,000 to £750,000, though some lenders may go higher depending on financials.
What’s the repayment period?
Typically between 1 and 6 years. Shorter terms often come with higher monthly repayments but less overall interest.
Conclusion
Unsecured business loans can be a valuable tool for SMEs that need funding without putting assets on the line. However, it’s important to weigh up the costs, eligibility, and alternatives before committing.