Looking for an infusion of capital to grow your business but don’t have assets to put up as collateral? Unsecured business loans allow you to borrow without pledging any business assets, making them a flexible financing option.
However, unsecured business loans can vary significantly between providers.
Whether you need £5,000 or £100,000, this article will help you shop smart and secure the most competitive unsecured loan for your capital needs.
- What is a Unsecured Loan?
- Pros and Cons
- Types of Unsecured Business Loan
- How Do Unsecured Business Loans Work?
- Top 10 Unsecured Loan Providers
- Unsecured Business Loan Eligibility
- How Can I Get an Unsecured Loan?
- Can I Get a Business Loan Without a Personal Guarantee?
- Unsecured Business Loans for Startups
- Alternatives
What is an Unsecured Business Loan?
An unsecured business loan does not require the borrower to provide collateral. Unlike a secured business loan, the lender has no assets to seize if the borrower defaults on the loan.
Unsecured business loans are typically offered to businesses with good credit histories, as lenders take on more risk by not having any collateral to secure the loan.
Unsecured business loans can be a good option for businesses, like startups, that do not have many assets to pledge as collateral or for businesses that need funding quickly. However, they typically have higher interest rates than secured business loans, as lenders take on more risk.
Pros and Cons of Unsecured Business Loans
Pros
Cons
- Flexible Duration – Repayment schedules can range from as short as a month to as long as five years.
- No Asset Security Required – Eliminates the need to commit valuable business assets as collateral.
- Minimal Administration – The process is straightforward, requiring minimal paperwork.
- Prompt Access to Funds – Quick release of loan funds to enhance your cash flow.
- Dischargeable in Insolvency – A feature not commonly found with secured loans.
- Reusable Funding Source – Once repaid, unsecured loans can often be drawn upon again.
- Flexible Repayment Terms – Offers the convenience of tailored repayment schedules.
- Higher interest rates – Lenders take on more risk.
- Lower loan amounts – Approvals capped due to increased risk.
- Stricter eligibility standards – Strong revenue and credit score required.
- Potentially requires a personal guarantee – Personal assets may still be at risk
- Missed payment penalties – Can damage business credit score.
- Less tax deductible – Potentially fewer interest deductions.
5 Types of unsecured business loans available in the UK
There are several different types of unsecured financing options for businesses in the UK marketplace, in addition to the standard type of term loan.
| Loan Type | Description | Repayment Terms | Interest Rates |
|---|---|---|---|
| Term Loans | Lump sum with fixed monthly repayments over 1-5 years | Fixed | Varies, often 6-12% |
| Business Credit Cards | Revolving credit up to a set limit | Minimum monthly payment | Typically higher, ~15-25% |
| Overdrafts | Lump sum repaid by the percentage of credit card sales | No fixed payments | Variable rates |
| Merchant Cash Advances | Lump sum repaid by a percentage of credit card sales | Fluctuates based on sales | Factor rates applied |
| Peer-to-Peer Loans | Loans from non-bank investors via P2P platforms | Fixed | Set by investors, often 4-10% |
How Do Unsecured Business Loans Work?
Here’s a breakdown of how it typically works:
- Application and Assessment: The business applies for the loan, providing financial information such as revenue, profit, and credit history. The lender evaluates this data to assess the creditworthiness and risk involved in lending to the business.
- Loan Approval and Terms: If the lender approves the application, they will offer loan terms, including the amount, interest rate, and repayment schedule. These terms are usually based on the perceived risk and the business’s financial health.
- Funding: Once the terms are agreed upon, the lender disburses the loan amount to the business. This is usually a lump sum transferred to the business’s bank account.
- Repayment: The business repays the loan over the agreed term in regular instalments, which includes the principal amount plus interest. The frequency of repayment (e.g., monthly, quarterly) and the interest rate are predetermined in the loan agreement.
- Closure of Loan: Once the business repays the loan in full, including any interest and fees, the agreement is concluded.
Top 10 Unsecured Loan Providers
Here’s a comparison table for these different types of unsecured business loans:
| Loan Provider | Amount | Features | Eligibility Criteria | Repayment | Fees | Time to Funding |
|---|---|---|---|---|---|---|
| Uncapped | £50,000 – £10 million | No securities, guarantees, dilution | Online model businesses | Daily, weekly, monthly schedules | Flat fee as low as 2% | 24 hours |
| Cubefunder | £5,000 – £100,000 | Can be used for any business purpose | Ltd company in England/Wales, min. £4k monthly turnover, min. 3 months in business | Flexible | £395 for <£40k, £595 for >£40k | 48 hours |
| Capify | £5,000 – £500,000 | No assets or security required, simple renewal process | Trading over 12 months, min. £10k monthly turnover | Fixed regular repayments | Unknown | 24 hours |
| Barclays | £1,000 – £100,000 | 6-month repayment holiday option, no early repayment fees | Financial history info required | 12-60 months | Unknown | 48 hours |
| Natwest | £1,000 – £50,000 | No early repayment or closure charges, online application for existing customers | Unknown | 1-7 years (up to 10 on request) | Unknown | 24 hours |
| Lloyds | Up to £25,000 | No early repayment fees, application for existing customers | Unknown | Varies | 12.7% APR (variable or fixed) | 48 hours |
| Santander | £2,000 – £25,000 | No interest for first 12 months, no arrangement fees, preferential rate for eligible customers | Requires Santander business current account | Fixed monthly repayments over term | 7.9% APR | Few days |
| Bank of Scotland | Up to £25,000 | No early repayment fees, application for existing customers | Unknown | Varies | 12.7% APR (variable or fixed) | 48 hours |
| Metro Bank | Up to £25,000 | No arrangement fees | Unknown | 1-5 years | 9.6% APR | Unknown |
| TSB | £1,000 – £1,000,000 | Capital repayment holidays, fixed rate for term | Unknown | 1-10 years | Up to 1.5% of loan amount | Unknown |
Please note that the features, eligibility criteria, repayment schedules, fees, and time to funding can vary significantly between lenders and may also depend on the specific circumstances of the business applying for the loan.
Is My Business Eligible for an Unsecured Business Loan?
To determine if your business qualifies for an unsecured loan, you should evaluate the following factors:
- Credit Score: Lenders generally seek a history of on-time payments and responsible credit use.
- Business Age: Many lenders require that your business has been operating for a certain period, often at least six months to a year.
- Revenue: Lenders look for consistent income and often have a minimum monthly or annual revenue requirement.
- Business Plan and Financial Statements: A well-defined business plan and clear financial statements can show lenders that your business is well-managed and financially sound.
- Industry: Some lenders may be hesitant to lend to businesses in certain industries and may have an excluded businesses list.
- Legal and Financial Standing: Your business shouldn’t have any outstanding legal issues or debt obligations that might pose a risk to lenders.
How Can I Get an Unsecured Business Loan?
There are multiple ways to secure an unsecured business loan including approaching high street banks, engaging with financial brokers, or simply use Business Expert’s simple comparison service.
To be eligible, your business should be registered in the UK for at least six months and have a minimum monthly turnover of approximately £5,000. Following these prerequisites, here are the steps:
- Understand Your Needs: Know why you need the loan and how much.
- Check Your Credit: Ensure your business and personal credit histories are good.
- Ready Your Financials: Prepare your profit and loss statements, balance sheets, and cash flow statements.
- Look for Lenders: Find lenders like banks and credit unions, and compare their terms.
- Get Your Documents: Gather your business plan, bank statements, and tax returns for the application.
Can I get a Business Loan Without a Personal Guarantee?
Getting a business loan without a personal guarantee in the UK is extremely difficult.
The closest we’re aware of is PayPal Working Capital, which offers an advance of up to 40%, with repayments taken as a fixed percentage from each future sale until the loan is repaid.
To be eligible for PayPal Working Capital, you will need to meet the following conditions:
- You’ve had a PayPal Business account for at least 3 months.
- Your business processes at least £9,000 in eligible PayPal sales annually.
- Your business is registered in the United Kingdom.
- You haven’t failed to repay any prior PayPal Working Capital cash advances.
Other options include government-backed loans, such as those offered by the British Business Bank, and crowdfunding platforms, which allow investors to provide funding to businesses in exchange for a share of the company’s equity.
Additionally, some alternative lenders, such as peer-to-peer lending platforms, may also offer business loans without a personal guarantee, although the terms and interest rates may be less favourable than those offered by traditional banks.
Personal Guarantee Clauses in Business Loans
Personal guarantee documents, typically signed by company directors, will place a personal asset as security for a business loan in the event of default.
It’s somewhat paradoxical that even so-called ‘unsecured’ loans require these since they are themselves a form of security.
They should never be signed lightly since these legal documents are specifically designed to breach the corporate veil.
Where personal guarantees are required, we always recommend using personal guarantee insurance policies to provide reassurance for directors who have put their family homes on the line for the sake of business growth.
Can you get an Unsecured Loan with Bad Credit?
Obtaining an unsecured loan with bad credit is difficult since the lender must assess risk before agreeing on the funds.
Where your business’s credit history indicates high risk, it may still be possible to agree on a loan, but the amount will be lower and the interest likely higher as a result.
There are lenders out there who specialise in higher-risk lending, so it’s certainly possible, assuming a personal guarantee can be offered.
As long as the lender perceives the loan repayments to be affordable, a range of finance options do exist, so contact us to find out more about the right provider for your business needs.
Unsecured Business Loans for Startups
Without a trading history or assets, many startup businesses struggle to find the finance necessary to catalyse growth.
For smaller amounts (£25k or less) the government’s startup loan scheme is worth investigating.
For larger amounts, the presence of a director’s personal guarantee is essential, but in these cases, it is possible to find good deals on loans of up to 150k. Contact us for details.
A carefully prepared business plan, clean personal credit score, and income projects will be necessary in all cases.
How To Compare Business Loans and Find the Best Unsecured Finance Quote
It isn’t quite as simple as saying that the lowest business loan rate equals the best deal for any company. In some cases, slightly higher interest rates may actually mean a far better overall deal.
We’ve found that a wide range of factors combine to mean that each business situation will have its own best match with a particular provider.
Contributory factors include:
- Amount of Paperwork
- Responsiveness of lender
- Speed of Payment – many promise ‘within 48 hours’, but do they actually deliver?
- Charges, Rates and Fees
- Business Sector
- Do they Offer Flexible Repayment Terms?
- Are there penalties for early repayment?
Alternative Finance Solutions to Consider
| Type | Pros | Cons |
|---|---|---|
| Secured Loans | Lower rates, larger amounts, longer terms | Require valuable collateral |
| Enterprise Finance Guarantee Loans | Government-backed, lower qualifications | More expensive, limited amounts |
| Business Lines of Credit | Revolving credit, pay interest on what you use | Lower approvals, need to renew frequently |
| Merchant Cash Advances | No credit checks needed | Very high equivalent interest rates, daily repayments |
| Equipment Financing | Use equipment as collateral | Limited to equipment needs, complex tax considerations |
| Business Credit Cards | Quick access to smaller amounts, convenient | High interest rates, need to pay off monthly |
Unsecured Business Loan FAQs
Are Unsecured Loans Safe?
Since even ‘unsecured’ business loans require a personal guarantee, there is substantial risk in taking out a loan, as with any form of finance. Defaulting on the loan will cause the lenders to call in the guarantee, so you must be sure you can pay the loan back before securing the finance. Read more on the Business Expert website.
Is it Possible to Get an Unsecured Loan Without a Personal Guarantee?
Practically speaking, borrowing money from any private lender without offering security is impossible. The government start-up loans scheme does offer finance of up to 25k, without guarantee, providing their other criteria are met.
What is the Maximum Term Length for Unsecured Business Loans?
The maximum term length for unsecured business loans typically ranges from one to five years. However, this can vary based on the lender and the specific circumstances of the business applying for the loan.
What Can I Use an Unsecured Business Loan For?
Unsecured business loans can be used for a wide range of purposes including covering everyday operational expenses like payroll, rent and inventory, business expansion or purchasing new equipment. Business loans can also be used for unexpected expenses, marketing, finance research and hiring and training new staff.
What are the Average Interest Rates for Unsecured Business Loans?
Interest rates for unsecured business loans can fluctuate depending on multiple factors including the amount of the loan, duration, your credit score and business history. Typically, interest rates range from 1.3% APR.
