How to get a business loan
Unsecured business loans let you borrow money without putting down assets as security. They're a faster and more flexible option, especially for businesses without property, vehicles or equipment to offer as collateral.
Key takeaways
No collateral is required, so they’re ideal if your business doesn’t own valuable assets or you don’t want to risk them
The application process is faster as there is no need for asset valuation, but they can also have higher interest rates and tougher eligibility criteria
Personal guarantees are standard, so you could still be personally responsible for repayment
What are unsecured business loans?
An unsecured business loan is a type of finance that doesn’t require you to secure the loan against an asset. This means you won’t risk losing property, equipment, or other valuables if your business struggles to repay.
They’re a popular option for newer or smaller businesses without major assets, or for business owners who prefer not to use their property as collateral.
Because there are no assets involved as with secured business loans, lenders focus more on your credit profile and financial history, which can speed up the approval process.
How do unsecured business loans work?
You receive a lump sum and repay it in fixed monthly instalments over an agreed term. No assets are used as security, but you’ll usually need to:
Pass a credit check (business and/or personal)
Sign a personal guarantee, meaning you’re personally responsible if the business can’t repay
Provide financial documents, such as personal and business bank statements, tax returns or details of existing debts
What are the advantages and disadvantages of unsecured business loans?
Unsecured business loans come with their own set of positives and negatives.
Pros | Cons |
|---|---|
No collateral needed | Harder to qualify with stricter credit checks |
Faster application and approval | Loans are typically smaller in amount |
Useful for newer businesses without property or major assets | Higher interest rates to offset lender risk |
No need to share equity | Personal guarantee means personal liability |
Who qualifies for an unsecured business loan?
Eligibility criteria are likely to vary between providers, but they will often have the following requirements:
You’ll need to be at least 18
You will need to be a director or owner of the business
You’ll need to have a minimum monthly turnover - the threshold will vary by lender
You’ll need to show at least four months of trading history
You’ll need a clean business credit history, or a strong personal credit score
Parliamentary data reveals that only 47% of SMEs applying for traditional bank finance in the UK are approved for the full amount requested, and over one‑fifth (21%) receive no explanation when declined.
What can I use unsecured business loans for?
You can use unsecured business loans for almost any legitimate business expense, including:
Expanding your premises
Hiring staff
Increasing wages
Buying equipment or inventory
Boosting working capital
You won’t be able to use the funds for personal expenses.
Alternatives to unsecured business loans
If you’re looking for alternative options to an unsecured business loan, you could consider:
Business overdraft
Business overdrafts work in a similar way to a personal overdraft, where you can spend more than your account balance. Make sure you speak to the account provider first for approval and to understand any potential fees.
Business credit card
Useful for everyday expenses, business credit cards let you spend credit so long as you repay it back. Be sure to repay in full to avoid paying interest and penalties.
Revolving credit facility
Works in a similar way to a credit card as a line of credit that lets you borrow and spend up to a preset limit as you need additional funds, and then repay in time to keep interest charges low.
Merchant cash advance
A way of receiving a cash advance set against future business sales. Often offered by non-traditional lenders who take a percentage of debit card and credit card sales to recoup this type of loan.
If approved, payments are taken out of your business account through a weekly or sometimes daily direct debit.
How do I pay back my unsecured business loan?
You’ll repay the loan in monthly instalments over a fixed term - the interest rate is usually set when you take out the loan, so your payments stay consistent throughout.
How long can I borrow for?
Loan terms are typically 1 to 5 years, though some lenders offer up to 10 years. Keep in mind:
Shorter terms mean higher monthly payments but less total interest
Longer terms give you smaller monthly payments but more interest overall
You might also be able to take out a long-term business loan if you qualify - these loans offer terms of up to 30 years
How fast is approval?
Because there’s no asset valuation involved, unsecured business loans are usually approved quickly. Many lenders give a decision within a few days, and in some cases funds can arrive on the very same day you apply.
Can I get an unsecured business loan with bad credit?
Yes, you can still get an unsecured business loan with bad credit, but it will be more difficult - you’ll likely get fewer offers, face higher interest rates and be offered smaller loan amounts.
If you're struggling to get approved, a secured loan may be a better option, but it means putting assets at risk if you default.
Author
Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
Reviewer
Mehdi Punjwani
Insurance specialist
Mehdi is a financial writer and editor with over six years of experience in personal finance. He has written for organisations and publications including Equifax, The AA, and USAToday, covering a...
