Compare 'Unsecured Business Loans' in just a few clicks

Unsecured business loans are a common way to raise funding, but they might not be suitable for your company. Weigh up the pros and cons to help you determine if they could be the best option.

Pros of unsecured business loans

• No security needed: Your business doesn’t need to have any high-value assets like property, land, or equipment to use as collateral, making it an attractive option for new or small businesses. However, a personal guarantee may be required.
• No risk to assets: As you don’t put any tangible assets down as security, there is no risk you’ll lose them if you’re unable to keep up with your loan repayments.
• Quicker and easier: The application process can be more straightforward because the lender won’t need to value and evaluate your assets.
• No early repayment costs: There are usually no early settlement penalties for unsecured loans.
• Easy budgeting: Paying a fixed monthly repayment for a set term makes it easier for your business to manage and budget the cost.

Cons of unsecured business loans

• Higher interest rates: Unsecured loans usually have slightly higher interest rates to offset the lender's increased risk because they have no assets to repossess if you can’t repay the loan.
• Small loan amounts: Due to the increased level of risk, lenders tend to offer lower loan amounts compared to secured business loans. However, most of our lenders can still lend up to £500k.
• Stricter eligibility: Lenders set tougher eligibility requirements because they need to be confident that your business can make the repayments, as having no security increases the risk.
• Personal guarantee: Some lenders may ask for a personal guarantee in place of the security of an asset. This means you will be personally responsible for the debt if your business fails.

If you’re unsure whether an unsecured loan is the right funding option for your business, there are several alternatives you could consider.

• Secured business loans: This type of loan allows you to borrow more over a longer period and at a lower interest rate. You need to provide a valuable asset as security.
• Bridging loans: A business bridging loan is designed to bridge a gap between a big purchase and an influx of money. It’s a secured loan designed to be taken out for a short period.
• Asset finance: This type of business finance allows you to purchase a new asset and spread the cost over time.
• Revolving credit line: This works in a similar way to an overdraft or credit card and gives you instant access to credit as and when your business needs it.  
• Invoice finance: This allows you to access money tied up in your unpaid invoices, allowing you to operate while you wait for payment.
• Merchant cash advance: This allows you to borrow against future card transactions. You repay a fixed percentage of your card sales until the loan is repaid.
• Peer-to-peer lending: Peer-to-peer lending works by connecting investors with businesses directly via an online platform.

The main difference between secured and unsecured business loans is that secured loans use your assets as security, and unsecured loans do not.

Which option is right depends on how much you need to borrow and what assets your business owns. A secured loan could be the best option if you own valuable assets, like property, and need to borrow a large sum. Here’s an overview of how the two types of loans compare:

Unsecured loanSecured loanSecurity requiredNoYesCredit historyGood score requiredLow score consideredInterest rateFrom 8.9% Lower rates availablePersonal guaranteeMay be requiredMay be requiredTime to acquireWithin 48 hoursIt can take up to 6 weeks

See how we helped a security company secure a £23,000 unsecured loan in this case study.

All lenders work slightly differently from each other, but most will either lend on a percentage of your turnover or a multiple of profit. Usually, they will only lend a maximum of 40% of annual turnover. So, if your annual revenue is £500,000, you will be able to borrow up to £200,000.

Lenders will look into your historical financial data and your credit profile to assess your affordability. Loans typically range from £1k – £500k.

Small business loans can be secured or unsecured. However, small businesses are more likely to qualify for an unsecured loan as they might not have the necessary assets to use as collateral for a secured loan.

It is not possible for a start-up business to get an unsecured loan. Unsecured lenders like to see businesses trading for longer than four months before they assess a proposal.

If the business hasn’t started trading yet or requires a larger investment, a secured business loan may be better suited for you.

This will vary from lender to lender, but you can expect interest rates to start from 8.9% annually. What interest rate you get can also depend on your business’s credit rating and affordability checks.

Some lenders may also charge an admin fee – this will be a percentage of the loan amount and will likely be deducted from the loan, so there is no need for any upfront fees to be paid.

An unsecured business loan can be used for almost any purpose, provided it is for legitimate business purposes. Common reasons businesses get unsecured loans include buying stock, refurbishing, cash flow, settling bills, and refinancing debts.

Getting an unsecured loan is possible if your business has a poor credit rating, but it will be much more difficult. Unsecured loans are considered more risky for lenders, so they will need to be confident your business can afford the loan.

They can determine this by checking your credit score to see how you’ve managed credit in the past. If you have a low credit score, they may consider your application if you also provide a personal guarantee.

Most unsecured loans require a personal guarantee to secure the facility, however, the lender will always try to work with you before enforcing this.

If you’re unable to meet your loan repayments, your business may face a number of consequences. You may incur late or missed payment fees, your credit score will be damaged, and the lender may need to take legal action to recover the debt.

If you agree to a personal guarantee as part of your application, you will be liable for the debt. That means you may have to cover the losses personally, and your assets may be at risk.

When you apply with Aurora Capital, we can give you a decision in as little as 24 hours, and you could even be in receipt of the funds within 48 hours.