What Is the Difference Between a Secured and Unsecured Business Loan?
Mark Grant
Head of Asset and Property Finance · Feb 25, 2024 · 7 min read
The difference between a secured and unsecured business loan comes down to collateral. Secured loans require an asset (usually property) as security; unsecured loans do not. This one difference has significant implications for rates, amounts, terms, and risk to the borrower and their directors.
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Secured business loans: lower rates, higher amounts
A secured business loan is backed by a charge over an asset, most commonly commercial or residential property. The charge means the lender has a legal claim on the asset if the borrower defaults. This substantially reduces the lender's risk, which is reflected in lower interest rates, higher loan amounts, and longer repayment terms.
Typical secured business loan parameters: amounts from £25,000 to several million pounds, terms from 1 to 25 years, rates from 4% to 12% per annum depending on LTV and credit profile. The LTV (loan to value) is the loan amount as a percentage of the property's value. Most lenders cap at 65% to 75% LTV for commercial property. The legal charge process takes 4 to 12 weeks.
Unsecured business loans: faster, no collateral required
An unsecured business loan requires no collateral. The lender relies on the business's cash flow and the director's personal guarantee as the primary protection. This means higher rates than secured lending, lower maximum amounts (typically up to £500,000), and shorter terms (usually up to 5 years), but the process is far faster, typically 24 to 72 hours from application to funded.
The personal guarantee in an unsecured loan means directors can be personally liable if the company defaults. This is not as severe as losing property, but it is a real commitment that should be reviewed carefully. Some lenders offer unsecured loans without a personal guarantee for established businesses with strong financials, though rates are higher.
"Secured is cheaper but slower and riskier for your property. Unsecured is faster but more expensive. The right choice depends on how much you need, how fast you need it, and what assets you are willing to put up."
- Mark Grant, Head of Asset and Property Finance
Frequently Asked Questions
Can I get an unsecured business loan without a personal guarantee?
Some lenders offer unsecured loans without a PG requirement, but rates are higher and amounts are typically lower. Spark Finance can identify lenders on our panel that offer no-PG products for qualifying businesses.
The bottom line
For planned investments where speed is not critical and you have property equity available, secured lending is almost always cheaper. For fast, smaller amounts, unsecured is the right route. Spark Finance can arrange both. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
Mark Grant
Head of Asset and Property Finance
Mark heads asset and property finance at Spark Finance, arranging hire purchase, asset refinance, bridging, and commercial mortgages for UK businesses and property investors. He works across construction, manufacturing, and property sectors to structure funding secured against assets and property.
