What makes a business loan unsecured?
With an unsecured business loan, the lender does not take a charge over a named asset as security for that borrowing. The business still owes the debt and must meet the repayment terms.
If the business cannot repay, the lender may use the remedies set out in the agreement. The exact position depends on the contract, the borrower and any guarantees or other security given.
Unsecured does not always mean no personal guarantee
A personal guarantee is a separate promise by an individual to meet some or all of a business debt if the business does not. It is not the same as a lender taking a charge over a business asset, and it can expose the guarantor’s personal finances.
Before signing, check who is giving the guarantee, whether it is capped, what costs it covers, how long it lasts and the circumstances in which the lender can call on it. Obtain independent advice if the terms are unclear.
What lenders may look at
Without a specific asset pledged for the loan, lenders may place particular weight on affordability and the business’s financial position. They can consider turnover, cash flow, time trading, existing debts, credit history, the requested amount and the reason for borrowing.
Criteria vary. A company or LLP may be asked for bank statements, accounts, management figures, company details and information about directors or members. Providing documents does not guarantee approval.
Costs and trade-offs to compare
The price of an unsecured business loan depends on the lender’s assessment and the product terms. Compare the total repayable, rate, fees, term and payment schedule with a secured alternative where one is suitable.
A secured loan may offer a different rate or amount, but it puts the agreed asset at risk if the business fails to meet its obligations. An unsecured offer can still carry a personal guarantee or other consequences. Compare the actual contracts, not just the labels.
A practical comparison checklist
Set the same amount and intended term when looking at more than one offer. Then check what the business receives, the total cost, whether payments are fixed, what happens after a missed payment and whether early repayment changes the balance or triggers a charge.
- Confirm whether there is a personal guarantee or other security.
- Ask whether the quoted rate is fixed or variable.
- Check all fees and the total amount repayable in writing.
- Test the scheduled payments against a cautious cash-flow forecast.
A few things worth knowing
Common questions
Can I get an unsecured business loan without a personal guarantee?
Some lenders may offer borrowing without one, while others may require a guarantee depending on the applicant and product. Check the offer directly; “unsecured” by itself does not answer this question.
Are unsecured business loans more expensive?
They can be priced differently from secured borrowing because the lender is assessing a different risk and product structure. The actual cost depends on the lender, applicant and terms. Compare total repayable and fees on a like-for-like basis.
Is an unsecured business loan risk-free?
No. The business remains responsible for repayment, and a personal guarantee may create personal liability. Read the agreement and any guarantee before accepting an offer.