Unsecured Business Loans

If you’re a UK business without assets to offer, or if you prefer not to use your assets as collateral, an unsecured business loan could be a fast, straightforward, and affordable way to secure funding.

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What is an unsecured business loan?

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An unsecured business loan allows you to borrow money without putting up any business assets, such as property, equipment, or machinery, as security. These loans are a simple and quick way to get a financial boost, especially if your business doesn’t have substantial assets or if you prefer not to use your assets as collateral.

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Many UK lenders offer small businesses funding for purposes like working capital, growth, or expansion. If you’re looking for fixed monthly payments over an agreed period, a business loan—whether secured or unsecured—could be an ideal solution.

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How do unsecured business loans work?

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An unsecured business loan provides upfront capital without requiring you to put up any security. Various unsecured loan options are available, each offering different terms to cater to diverse business needs. You can often access funding rapidly, sometimes within the same day.

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You’ll repay the loan in daily, weekly, or monthly instalments over a set period. The loan term can be short-term or medium to long-term, depending on your business requirements.

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Some lenders might also give you the option to repay the loan early, possibly without any penalties.

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Secured vs. Unsecured Business Loans

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A secured business loan requires collateral, often in the form of property, vehicles, or machinery. In some cases, intangible assets, like outstanding invoices, can be used as security (as seen with invoice financing). If you fail to repay a secured loan, the lender can sell the assets to cover their losses, reducing their financial risk.

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In contrast, an unsecured loan has no such security, so lenders focus more on your business’s financial health—your turnover, trading history, and credit rating. They may also review your personal credit history and assets, potentially requiring a personal guarantee.

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Because lenders take on more risk with unsecured loans, these loans tend to carry higher interest rates, shorter terms, and smaller loan amounts. However, they are typically quicker and easier to arrange, with fewer upfront costs since no asset valuation is required.

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What do I need to qualify?

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Qualifying for an unsecured business loan is usually straightforward. Your business needs to be registered in the UK for at least six months, with a minimum turnover of £5,000 per month.

 

Applicants must also be over 18 years of age. Lenders will typically consider factors such as:

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• Turnover and profit

• Bank statements

• Trading history

• Credit score and payment history (e.g., any late payments or county court judgments)

• Directors’ backgrounds (including personal guarantee from the main shareholder)

• Business forecasts and plans

• Client/customer base

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How much can I borrow?

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Lenders often base loan amounts on a multiple of your business’s monthly turnover, as well as your trading history and credit score. Larger loans may be available if you have a strong cash flow, a long trading history, and a solid balance sheet.

For early-stage or smaller businesses, securing a large unsecured loan may be challenging, even with a personal guarantee. In such cases, you might need to consider a secured loan or other financing options.

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How fast can I get an unsecured business loan?

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Unsecured business loans can be arranged quickly—sometimes within hours of applying—making them a faster option than secured loans, which require asset valuations that take time.

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Pros and Cons of Unsecured Business Loans

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Pros:

• Quick and simple access to funds

• No need to offer assets as collateral

• Predictable repayments with fixed monthly payments

• Minimal upfront costs, if any

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Cons:

• Higher interest rates due to the increased risk for the lender

• Smaller loan amounts and shorter repayment terms

• The possibility of needing a personal guarantee

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What are the interest rates on unsecured business loans?

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Interest rates for unsecured business loans will depend on the product and the risk level to the lender. Businesses with a solid trading history and good credit are likely to be offered more favorable rates.

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Generally, unsecured loans carry higher interest rates compared to secured loans, as the lender has no assets to recover in case of default, making them riskier.

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What is a personal guarantee on an unsecured business loan?

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A personal guarantee may be required, meaning the director offering the guarantee could be personally liable if the business cannot repay the loan. This often involves putting personal assets, such as your home, on the line. It’s important to seek professional advice before signing any personal guarantees.

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Can I get an unsecured business loan with bad credit?

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Yes, it’s possible to get an unsecured business loan even with bad credit, though it may be more difficult. You’ll likely face smaller loan amounts, shorter terms, or higher interest rates, depending on the product and the level of risk to the lender.

Improving your credit score before applying can increase your chances of securing a loan on better terms. If bad credit is preventing you from getting a business loan, you could explore alternative unsecured financing options, such as merchant cash advances, revolving credit facilities, overdrafts, or business credit cards. Invoice finance, which uses your accounts receivable as security, is another option.

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Can a small business or startup get an unsecured business loan?

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Yes, small businesses and startups can access unsecured business loans. Even if your business is relatively new, you may still be able to secure funding without risking personal assets. However, if you’re seeking a larger loan, your business will need a solid financial foundation, proven growth, and a balance sheet that demonstrates an ability to handle repayments.

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What happens if I default on an unsecured business loan?

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Defaulting on an unsecured business loan—failing to make payments within the agreed timeframe—can have serious consequences for your business.

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You could incur fines and administrative fees for missed payments. While you won’t lose assets directly (unless you’ve provided a personal guarantee), defaulting will negatively affect your credit score. This can make it harder to secure financing in the future and could harm your ability to establish business relationships, as many companies conduct credit checks.

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A low credit score also means less favorable loan terms in the future, such as higher interest rates, as lenders perceive you as a higher risk. While you can work to improve your business’s credit rating, negative marks can remain on your credit file for years.

 

How do I get an unsecured business loan?

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If you’d like to explore your unsecured business loan options, or if you’re uncertain about which type of finance is best suited for your business, register with Monetae to consult with a financial expert and find the most appropriate solution for your needs.