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What are unsecured business loans?
In contrast to secured business loans, unsecured business loans don’t require company assets as security, but lenders may ask for a personal guarantee. This is a written promise from a business owner or executive that guarantees payment of a loan if the business fails to pay. As it's unsecured, a personal guarantee is not tied to a specific asset.
It’s also worth considering that lenders don’t have the same level of security with an unsecured business loan as they would with a secured loan. As a result, they tend to levy higher interest rates on unsecured loans. Although this kind of lending tends to be an easier process for borrowers, it could turn out to be the more expensive option, so make sure you read each lender’s products details before committing.
Unsecured business loans are commonly used to support cashflow or business growth, purchase new equipment, or to cover the cost of refurbishing an office or commercial premises.
Unsecured business loans – key considerations
Unsecured business loans are generally seen as a more accessible form of business growth funding because they don't require any assets as security. They can also be deposited in less time than a secured business loan because there's not usually any need for property valuations and drawn-out legal processes. This makes them an attractive option for fast-growing small businesses that don't own many assets and need quick access to finance.
However, while the initial cost of an unsecured business loan might be lower than a secured business loan, the overall cost of the loan could be higher because the lender will be opening themselves up to more risk by not taking any security. There will also be a limit to how much a lender is willing to lend unsecured, which could be anywhere between £200,000 and £300,000, depending on the lender. Therefore, you will probably need to provide some security if you're looking to borrow a higher amount.
Unsecured vs secured business loans
Secured business loans require a business to offer up company assets as security, which a lender can collect if the business defaults on its repayments. The collateral that a business will be expected to provide as security will ultimately depend on the lender, but it will generally be one of the following:
- Land
- Commercial property
- Fittings and fixtures
- Equipment
- Vehicles
It's unlikely that a lender will ask for any security on an unsecured business loan, but they will often request a personal guarantee from the business owner and any other shareholders or company executives.
Personal guarantees
A personal guarantee is a commitment from a business owner to pay off a loan in the event that their business defaults on its payments. Lenders' requirements in respect of personal guarantees vary according to the status of a company.
Limited companies and LLPs
- If you've set up your business as a limited company or limited liability partnership (LLP), most lenders will expect you to provide a personal guarantee.
- All shareholders and directors with at least a 20% to 25% share in a limited company will probably also be asked to provide a personal guarantee.
Sole traders and partnerships
- Business owners operating as sole traders or partnerships with unlimited liability (not LLPs) are always personally liable. This ultimately means that a lender will be basing their funding decision on the personal credit history of the business owner.
Given that each lender will have a different approach to their decision-making, it pays to have a close look at the terms of every lender. Bear in mind, however, that refusing to provide a personal guarantee will reflect badly on your funding application and intention to repay the loan.
Unsecured business loans from Fleximize
For business owners seeking a traditional fixed-instalment loan, our Flexiloan might be just the funding solution you’ve been looking for. Offering £1,000 to £250,000 on flexible terms of one month to two years, the Flexiloan comes with no upfront fees or early repayment charges. Business owners also have the option to top up their loan after three successful repayments, and take repayment holidays when the slower months hit.
Fleximize’s Revenue Advance offers the benefits of an unsecured business loan, but without the cost of fixed monthly repayments. Rather than having to pay back the same amount each month, Fleximize simply collects an agreed percentage of a company’s monthly revenue until the loan is paid off in full. This makes it an attractive option for anyone seeking hotel finance, and other businesses with seasonal sales patterns.
The key features of Fleximize's unsecured business loans are summarized below:
- Borrow £5,000 to £250,000
- Flexible terms of one month to 24 months
- Lightning-fast online application
- Funds deposited within 48 hours of submitting full application
- Repayment holidays and top-ups as standard
- No hidden fees or early repayment penalties
You'll be guided through the whole application process by one of Fleximize's relationship managers, who will serve as your point of contact from application to funding.
Will my credit score affect my application?
While a poor credit score was once a real barrier to raising funds, Fleximize will sometimes consider lending to companies with an imperfect credit history. As long as you can demonstrate a recent record of timely debt repayment and strong financial performance, and that you're a limited company or partnership, you could be eligible for funding.
Still unsure about unsecured business loans?
If you’d like more information about unsecured business loans before making that crucial application, why not speak to one of our experienced relationship managers on 0207 100 0110, or simply browse our services to find out more. Ready to apply? Simply click the button below.