What is an Unsecured Business Loan?

March 5, 2024
Andrew Knowles

An unsecured business loan is a way for a business to borrow money quickly and easily, without using any assets to guarantee the loan. 

A secured loan is tied to specific assets, meaning if the borrower can’t repay, the lender can sell those assets to recover some or all of the amount borrowed.

The Benefits of an Unsecured Business Loan

This method of borrowing is extremely popular with businesses needing to raise finance. 

These benefits include:

Quick to arrange - An unsecured loan can be set up within just a few days, giving your business fast access to additional working capital. 

Flexible - Because it’s quick to arrange, you can usually set up a loan at short notice. If circumstances change again, you can often repay it early and save yourself interest. Or you can put the funds to work in another way. Business assets are protected - No assets are used as security for the loan, meaning you are free to manage your assets as you choose.  

Fewer upfront costs - There are no assets to value and no legal costs associated with unsecured loans. This helps keep the costs low, both in money and your valuable time.

Loan amounts can be relatively small - Depending on your circumstances, you may only need a loan of a few thousand pounds.

Loans available to suit many different situations - There are many different types of lender, each with their own preferences and criteria for who they lend to. Whatever your circumstances, there are likely to be lenders who can help.

Why businesses take out unsecured business loans

  • To take on new staff.
  • To upgrade their premises.
  • To invest in additional inventory.
  • To develop a new market.
  • To purchase new equipment.

Whatever the reason, it’s usually associated with growing the business in some way, which will provide the capital to repay the loan and bring in revenue that more than covers the interest costs.

However, sometimes a business needs to borrow because it’s necessary. Reasons for this can include:

  • To protect cashflow.
  • To consolidate debt.
  • To cover a shortfall in working capital.

If a major customer suddenly fails to pay on time, a tax bill is larger than expected, or a major cost is incurred with little warning, your business may find itself facing a cashflow problem. In this situation the loan is about keeping the business going, rather than planned growth. 

Whatever your reason for needing additional finance, an unsecured business loan is often a cost-effective and convenient solution.

Flexible, affordable finance for your business

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FAQs about unsecured business loans

Are there specific requirements for an unsecured loan?

Every bank or other lender has their own requirements and criteria. Typically, this includes some evidence of trading history, providing access to your bank statements and providing evidence of future business plans.

Is an unsecured loan available to a start-up?

Most lenders want the confidence that your business is viable. This means they are looking for some trading history, typically of at least six months. 

If the loan is unsecured, how can the lender be sure they’ll get their money back?

Most unsecured business loans are underwritten with a personal guarantee from a director of the business. That is, the director commits to take on responsibility for repaying the debt should the business fail to do so.

How is an unsecured loan usually repaid? 

You will typically repay an unsecured business loan in equal monthly instalments, usually spread over two to six years. These repayments include both the capital sum and the interest charged. Because the repayments are the same each month, your cash flow planning is made easier.

Would your business benefit from the flexibility and convenience of an unsecured business loan?

Jamie Davies
Managing Director

As a founder of multiple businesses, Jamie believes that mindset, discipline and ambition are key drivers for success, both for his businesses and for his clients. 

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Disclaimer: Spark Finance Ltd (Registered office - 18 John Stow House, London, England, EC3A 7JB, Registered Number 10128297) helps UK firms access business finance. Spark is a credit broker, not a lender. Any quotes provided are for information purposes only and subject to status and separate lender terms and conditions. Applicants must be aged 18 and over.  Guarantees and Indemnities may be required.  Spark Finance may receive commission from lenders  which may vary depending on the lender, product, or other permissible factors. The nature of any commission model will be confirmed to you before you proceed.

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