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What is an unsecured business loan?

An unsecured business loan doesn’t require you to have an security when applying. Security is used to make a loan less risky for the lender providing it. Secured loans usually use assets (stock, buildings, etc) as this security, which allows them to sell these assets if you cannot repay the loan.

The Pros and Cons of Unsecured

It can be helpful to weigh up the pros and cons of loan options before applying, so here are some for an unsecured business loan.

ProsCons
No assets required for securityWorse interest rates
Quicker application processPersonal guarantee often required
Upfront cost lowerTrading history often required

Personal Guarantees

In many circumstances a lender will ask you to put forward a personal guarantee, either from a company director or other affiliated member of the company. This is good for the lender as it lowers the risk they undertake by providing a loan.

Obviously on the flip side this risk is now undertaken by the guarantor, and so can put them under undue stress, which is especially difficult if they are also heavily involved in the success of the business.

A guarantor can often help you secure a higher amount of funding on an unsecured business loan.

Unsecured Loans vs Other Funding Sources

If you are looking into business loans, you’ve most likely already considered the other options of credit.

Sources such as credit cards, overdrafts, personal and student loans, all involve continuous borrowing, attracting a higher rate of interest which can be difficult to manage.

In contrast unsecured loans have equal installments continuously until the end of the loan period (when you have fully paid it off), which can be really useful when consolidating business debts into more manageable repayments.

Debt Problems, Defaults and Debt Collectors

Unfortunately in some circumstances it can be difficult or impossible for you to repay your loan.

If this happened with a secure loan, the lender would simply use the collateral / assets to recoup the loss. However with an unsecured loan, the lender must resort to debt collection, which can put pressure on the borrower and sometimes force them to apply for bankruptcy.

Best Unsecured Business Loans UK

Here are our recommended providers of unsecured business loans if you do business within the United Kingdom.

RankLoan Company
1iWoca
2Start-up Loans
3Capital OnTap
4Yes Growth
5Boost Capital

What to expect when applying

To make sure you’re prepared for applying for this type of loan, we recommend you have the following information to hand, scanned into a computer and ready to send to your lender of choice:

  • Personal guarantor information
  • Cash flow forecasts
  • Trading history of the last 4 years

Can I get an unsecured business loan without a personal guarantee?

In some circumstances you can get these loans without a guarantee, this depends on the lender in question.

Short Term Loans

These can be over a few weeks or months, and some lenders will allow borrowing up to £200,000 with no collateral.

Invoice Finance

This is useful if you have outstanding invoices yet to be paid, as the lender will lend to the value of those invoices, providing much needed cash flow.

Government Startup Loans

These are mainly designed for new businesses, allowing you to receive a loan of up to £25,000, providing fairly low interest rates.

Bridging Loans

These were originally meant for those in the housing market, to carry them over between a sale and purchase of new and old houses. However in pressing circumstances they can be used as a short term business loan.

Tax Loans

This allows you to spread the cost of your cash bill, to help manage the cash flow of your business. There are many lenders that offer unsecured tax loans, a great form of commercial finance.

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