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Exploring Unsecured Business Loans

Business loans come in many forms, and they can be secured or unsecured - and it's crucial you know the difference!

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Business loans come in many forms, and they can be secured or unsecured - and it's crucial you know the difference!

The significant contrast is that if you apply for an unsecured loan, you don't need to put up an asset (such as a property) as collateral against the debt.

This option can be great for small businesses or new enterprises with no tangible assets to offer as security. However, you need to recognise that the lender's risk is much higher, and therefore the rates payable and borrowing limits will be stricter.

Whether you need a short-term loan to supplement your cash flow or a capital injection to grow your business, an unsecured business loan is one of many options.

In this guide, the Revolution Brokers team explains how these loans work and a few pros and cons to watch out for.

For more advice on UK unsecured business loans or to get started with a new application, give us a call on 0330 304 3040 or drop an email to info@revolutionbrokers.co.uk.

The following topics are covered below:

What Are Unsecured Business Loans UK?

How Do Unsecured Business Loans Work?

Can I Get a Business Loan For Any Purpose?

How Much Can I Borrow on Unsecured Business Loans UK?

What Are the Advantages Of an Unsecured Small Business Loan?

Are There Pitfalls to Fast Unsecured Business Loans?

Why Take Out Unsecured Business Loans?

What Costs Are Involved With the Best Small Business Loans?

How Long Does it Take to Get Quick Business Loans?

What Security Do I Need to Get an Unsecured Small Business Loan?

Can I Get a Business Loan Without a Credit Check?

What Are Unsecured Business Loans UK?

Unsecured loans are just like any other debt - the sole difference is that they aren't secured against a company asset.

A secured loan might use the business premises or equipment as collateral. That means if the debt doesn't get repaid, the lender can repossess the security and sell it to recoup their unpaid liabilities.

From a lender's perspective, an unsecured loan is, therefore, a higher risk.

Many will ask for a personal guarantee from the company directors.

That means that your private home and assets are used as security and requires professional advice to ensure you're comfortable with the exposure.

One option is to take out liability insurance to mitigate your risk - give us a ring to discuss that solution a little further!

How Do Unsecured Business Loans Work?

The loan itself works like any other. You apply for the amount you want to borrow, and you'll pay it back in repayments, including the capital and the interest charged.

To apply, businesses need to provide information about:

  • How much they want to borrow.
  • Why they are taking out the loan.
  • Their credit file.
  • The requested loan repayment period.

It's crucial to work with an experienced broker before committing to any unsecured loan, as rates and terms vary substantially throughout the market.

We'd recommend assessing the total cost of borrowing and looking at the repayment costs to ensure you're confident the business will cope with the level of debt.

Some unsecured loans are very short-term, and others run for several years, so if the debt is expensive, it could have ongoing ramifications for your business.

Can I Get a Business Loan For Any Purpose?

There isn't any specific restriction against reasons you can apply for an unsecured business loan. You will need to tell the lender what you plan to do with the funds, though.

Common reasons include:

  • Buying new equipment
  • Investing in a marketing campaign
  • Purchasing additional inventory
  • Buying a building
  • Propping up short-term cash flow

Some lenders prefer to accept business applicants with particular projects in mind, but you can borrow against pretty much anything provided it's a justifiable expense.

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How Much Can I Borrow on Unsecured Business Loans UK?

The maximum you can borrow depends on your business lender and their policies about approving unsecured loans.

Most will start by looking at your company turnover and filed accounts to determine whether your business is profitable.

They're looking to check if you can afford the loan repayments.

Another criteria is around your credit record, which will impact the amount you can borrow.

Unsecured business loans are typically for smaller values, repaid over fewer years, so most products offer up to £40,000 as an average upper limit.

What Are the Advantages Of an Unsecured Small Business Loan?

Unsecured loans can be a lifeline for businesses with no assets to use as collateral against a lower-cost secured loan.

They can be a fast, easy option if you need to borrow a relatively small value and are usually approved quickly since there isn't any property valuation process.

Most banks or commercial lenders accept online applications, so provided you've completed a cost analysis and are happy you've found the best deal, you might be able to get the cash into your account in just a couple of days.

Are There Pitfalls to Fast Unsecured Business Loans?

It isn't always easy to find approval since most lenders will only accept businesses with good credit ratings and decent trading histories.

Therefore, as a new business without several sets of accounts, you won't get the best rates if you apply directly.

Unsecured loan maximums can also be a little lower, and interest rates higher since the lender has a risk that you won't repay the debt.

Personal guarantees require careful analysis since if you sign one you are leveraging your home and personal finances against the likelihood that the business will keep up with repayments.

If you don't repay a loan, the lender can still pursue recovery through court, even if it is unsecured.

Why Take Out Unsecured Business Loans?

One of the most attractive features of an unsecured business loan is that they're available relatively quickly.

You can apply to a range of banks, challenger banks and specialist finance providers offering competitive rates.

The key advantage is that you don't need to put forward collateral or have a loan guarantor to secure the funding you need to grow your business.

Secured loans can take much longer to arrange since you'll need to put forward security (and have it valued in some cases).

Alternatively, you can be asked for a guarantor to guarantee the capital borrowed.

However, secured loans are available to much higher values, for longer terms, and with lower interest rates, so both options have pros and cons.

What Costs Are Involved With the Best Small Business Loans?

The main downside of an unsecured loan is that the interest rates will be higher than on an alternative borrowing product.

If you're looking for competitive rates, you'll usually find that loan terms between three and five years are better than those on short-term borrowing agreements.

Give the Revolution team a call on 0330 304 3040 for more information about the current average market rates on unsecured business loans.

How Long Does it Take to Get Quick Business Loans?

When time is of the essence, unsecured loans can be helpful since they're usually faster to arrange than any other kind of business finance facility.

The majority of the work can be completed online.

Provided your lender is happy with your credit history and the risk associated with the application, you can usually get access to your funds within a few days and sometimes even hours!

What Security Do I Need to Get an Unsecured Small Business Loan?

The whole concept of an unsecured loan is that you don't need to offer security. However, if the business is struggling to make repayments, there is a strong possibility of incurring additional penalties.

If you don't keep up the repayments, your unsecured loan provider could also take legal action, which can end up with a CCJ and issues impacting your credit rating.

Therefore, if you're taking out an unsecured loan with zero personal guarantees, you need to be aware of the potential actions of your lender if you don't repay the debt.

Can I Get a Business Loan Without a Credit Check?

Just about every lender will require a mandatory credit check, and this applies even for fast unsecured loans that aren't subject to as much verification as more substantial facilities.

The lender needs to be confident they'll get their money back, so you can't circumvent a credit check.

However, you won't need to provide an asset to back up the loan, which is why an unsecured loan remains popular with new businesses or service industries where a capital injection can be the ideal borrowing product.

For more information about UK unsecured loans, please get in touch with us at 0330 304 3040, or email us via info@revolutionbrokers.co.uk.

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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