How unsecured business loans can help your company
Unsecured business loans let you borrow money without needing to offer assets like property or vehicles as collateral. They’re quicker to apply for and ideal for businesses without valuable equipment or premises.
Key takeaways
The application process is simpler and faster than secured loans, as no asset evaluation is needed
They’re flexible and don’t require collateral, making them a good option for businesses without assets or those not wanting to risk assets
It’s important to weigh the benefits against the potential higher costs and eligibility challenges
Always consider the terms and potential risks before committing to an unsecured business loan
What are unsecured business loans?
An unsecured business loan is a way to borrow money without putting up assets as security. They’re often used by businesses that don’t have valuable property or don’t want to risk their equipment or premises.
Because there’s no collateral, these loans come with stricter eligibility criteria and often higher interest rates. But they’re quicker to apply for compared to secured business loans, and ideal for short-term or medium-sized funding.
How do unsecured business loans work?
Unsecured business loans give you a lump sum of money upfront without needing to offer property or equipment as collateral. Since the loan isn’t tied to an asset, lenders take on more risk.
This means they’ll carry out a thorough assessment of your business’s credit history, financial stability, and revenue before approving your application.
They may also look at your personal credit file, especially if your business is relatively new.
In most cases, you’ll be asked to sign a personal guarantee - which is a legal commitment that you’ll repay the loan personally if your business can’t.
Some lenders may also ask your spouse or business partner to co-sign. If approved, you’ll repay the loan in monthly instalments - usually at a fixed rate, over a set term agreed at the start.
What are the advantages and disadvantages of unsecured business loans?
It’s useful to consider the pros and cons of taking out an unsecured business loan before you apply.
Pros | Cons |
|---|---|
No need to offer assets as collateral | Higher interest rates compared to secured loans |
Quicker application process | Can be harder to qualify with poor credit |
Fixed repayment plans make budgeting easier | Lower maximum loan amounts |
Does my business qualify for unsecured business loans?
While eligibility criteria can vary between different lenders, you’ll find that most will look for the same basic things:
A minimum length of time trading, around 3-4 months
A minimum annual turnover
A decent business credit score and repayment history
You’ll also need to be 18 and your business will need a UK address, while the lender will usually require the person taking out the loan to be the business owner or director.
What can I use unsecured business loans for?
You can use unsecured business loans for nearly any legitimate business expense, including:
Buying equipment or stock
Expanding premises
Hiring or training staff
Boosting working capital
They can’t be used for personal spending or non-business costs.
Other types of unsecured business finance
An unsecured business loan is not the only option for your company to borrow money. You could also consider the following:
Business overdraft
Spend more than your balance on your business account - it’s best for short-term needs, but interest and fees can be high.
Business credit card
A business credit card offers flexible credit for everyday spending, just remember to repay in full every month - or at least meet the minimum monthly amount - to avoid paying extra in fees or interest.
Revolving credit facility
A credit line you can draw from as needed, like a business credit card, and repay flexibly.
Merchant cash advance
You borrow a lump sum and repay via a percentage of your daily card sales, useful for retail or hospitality businesses.
How do I pay back my unsecured business loan?
Most unsecured loans have a fixed interest rate and set monthly repayments, so you’ll know exactly how much you owe each month. Terms typically range from one to five years, though some lenders offer longer.
What is the maximum term length for unsecured business loans?
Loan terms usually range from one to five years, but some lenders may offer up to 10 years, depending on your business’s size, credit history, and the amount you want to loan. Longer terms mean lower monthly repayments, but you’ll end up paying more interest overall.
How long do unsecured business loans take for approval?
Unsecured loans can be approved in just a few days, and sometimes on the same day you apply. With no assets to evaluate, lenders can make decisions faster than with secured loans.
Can I still get an unsecured business loan if I have bad credit?
Yes, you can still get an unsecured business loan with bad credit, but you might find your options to be limited:
You’ll likely face higher interest rates
You may only qualify for smaller amounts
You could be asked to offer a personal guarantee
If you’re struggling, it might be better to consider a secured loan if possible as you’ll be more likely to get better terms by offering collateral.
Other useful guides
We have a variety of guides about business loans you can read:
Bad credit business loans explained
Scour the market and find the right business loan
Lenders offer a wide range of business loan options for you to choose from. The easiest way to compare all the loans available in one place, including unsecured business loans, is by using MoneySuperMarket.
Simply tell us a little about your financial situation and what kind of loan you’re looking for, including what you’ll be spending the funds on.
We’ll scour the market and give you a list of competitive offers - once you’ve decided, you can click through to the provider and get the process started.
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...
