Compare The Best Unsecured Business Loans For UK Businesses
Compare the interest rates, funding available, fees, available terms and eligibility requirements of the best unsecured business loans for UK SMEs.
Updated: 6th October 2025
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- Borrow £10,000 to £750,000
- Rates from 6.9% per year
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Most business loans in the UK are unsecured, with the latest business finance data showing that only a quarter of businesses provide business assets as collateral for business lending.
Unsecured business lending has experienced a lot of innovation in the past few years with challenger banks and specialist online lenders taking market share from traditional high street banks. As conventional high-street banks are rejecting 56% of business lending applications, alternative lenders are meeting the demand with performance-based risk assessments and rapid funding.
If you’ve decided that an unsecured loan is right for you, the next step is to compare the various funding options available. In this guide, we’ve searched the whole market to find the best unsecured options available from UK banks, alternative lenders, and peer-to-peer solutions.
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UK Unsecured Business Loan Providers
Funding Circle Unsecured Business Loan
- APR: From 6.9% per year.
- Funding available: £10,000 to £750,000.
- Available terms: 6 months to 6 years.
- Additional Fees: Undisclosed one-off completion fee, but no early repayment fees.
Funding Circle began as a peer-to-peer marketplace, founded in 2010. Over 130,000 UK businesses used Funding Circle by 2022, and in 2025, they expanded their offerings to government loan schemes, credit cards, lines of credit, and asset financing.
The company is no longer a P2P marketplace, and the unsecured business loan offering is highly competitive. A major draw is the simplicity of the eligibility requirements: UK-based companies that are one year old. Some documentation is required for applications, including profit and loss statements, balance sheet information, and up to eight months of bank transactions.
- Eligibility: UK-based with one year of trading history.
- Decision speed: Decisions are made in as little as one hour, and funds are typically available within 48 hours.
- Minimum turnover: Undisclosed.
- How to apply: Apply online.
Love Finance
- APR: Rates from 6.9%.
- Funding available: £5,000 to £750,000.
- Available terms: 3 months to 6 years
- Additional Fees: None
Love Finance operates as a hybrid within the alternative financing space. It’s both a direct lender and a broker. They first assess your application against their own lending criteria, and if you’re not the right fit, they help find an external lender for you.
Their in-house offering is extensive, ranging from £5,000 to £750,000. Repayment plans are flexible, and rates can be competitive. Pre-approval can be done in minutes and doesn’t impact your credit score.
Love Finance doesn’t actually publish its representative APR, and is likely to be higher than the indiciative 6.9% shown in their online calculator for most SMEs. The company has glowing reviews on Trustpilot and is an accessible option for startups.
- Eligibility: UK-based businesses with at least three months’ trading history.
- Minimum turnover: £50,000 per year
- Decision speed: Pre-approval in minutes, with funding available within four hours.
- How to apply: Apply online.
iwoca Small Business Loans
- APR: As low as 2% per month and a representative APR of 49%.
- Funding available: £1,000 to £1 million, typically limited to the amount of one month’s revenue.
- Available terms: 1 day to 60 months.
- Additional Fees: Upfront fees on loans over 12 months. No early repayment fees.
Founded in 2011, iwoca has a big, bold brand that targets small, independent businesses. As of July 2025, iwoca has lent to over 50,000 SMEs.
iwoca has two main products: business loans and trade credit, with the latter having limits up to £30,000. Sole traders may only obtain loans for up to two years (with no paperwork required through Open Banking), while limited companies can access longer terms.
It’s possible to alter the repayment structure and save interest by repaying early. Their focus on customer service is working as they’ve been rated excellent by around 10,000 customers on Trustpilot.
- Eligibility: Must be a UK-based business and operate as a sole trader, partnership or limited company. Startups welcome.
- Decision speed: 24 hours
- How to apply: Apply online.
- Minimum turnover: Undisclosed.
Fleximize Unsecured Business Loan
- APR: Rates start from 0.9% per month.
- Funding available: £10,000 to £500,000 (a maximum of two months’ revenue).
- Available terms: 1 month to 42 months.
- Additional Fees: No fees if you apply directly.
Fleximize was founded in October 2013 and prides itself on an agile approach, offering fast and flexible financing in as little as 48 hours. It also includes penalty-free early repayments, top-ups to access further capital quickly, and repayment holidays.
This financing approach is powered by its own credit scoring system, and Fleximize encourages businesses that have been rejected elsewhere to apply directly, as the lending criteria are quite favourable to small, new companies. Sole traders can only access £25,000, though.
- Eligibility: Trading for at least six months, UK limited companies and LLPs (sole-traders can access reduced loan amounts).
- Decision speed: 24-48 hours.
- Minimum turnover: Over £5,000 per month.
- How to apply: Apply online or by phone.
Nucleus Unsecured Business Loan
- APR: From 8.5%
- Funding available: £10,000 to £2,000,000
- Available terms: 3 months to 6 years.
- Additional Fees: Not currently disclosed, but they previously published an up-front arrangement fee for their cash flow finance, which is between 3.5% and 5.5%.
Nucleus Commercial Finance was founded in 2011 and has lent close to £3 billion at the time of writing [October 2025]. The bank celebrates its “human approach”, with customer service representatives always available via telephone, and offers the stability and scale of bank financing combined with the fast decisions of an alternative lender.
Nucleus is extremely fast with its decision-making. The company leans into Open Banking and Open Accounting, which allows them to assess the financial health of your business easily. However, there is contradictory information about whether terms are up to 6 years or 7, and whether the minimum trading history is 6 months or 12. With little clarity around fees or representative APR, Nucleus is not the most transparent of lenders.
- Eligibility: Minimum 12 months trading history, Access via Open Banking, and at least one Director based in the UK.
- Decision speed: Over 95% of deals are decided upon within one minute. Funding within 24 hours.
- Minimum turnover: Undisclosed.
- How to apply: Apply online.
Momenta Business Finance
- APR: Variable starting at SONIA plus 7.5% p.a.
- Funding available: £50,000 to £500,000 unsecured (up to £1.5 million secured).
- Available terms: 1 month to 6 years.
- Additional Fees: No early repayment fees.
Launched in 2013, Momenta Finance (formerly Merchant Money) was designed to provide alternative lending solutions, from bridging loans to cash advances. Momenta Finance claims its focus is on transparency, and we can attest to that, as it’s one of the few online lenders that pegs its interest rate to SONIA and publicly states the additional margin.
One drawback of Momenta Finance is that a homeowner must be used as a personal guarantee. The implication is clear, despite this being an unsecured loan. However, if you have two homeowners within the business, an “Enhanced” product is available, offering funding limits that rise from £350,000 to £500,000.
Minimum turnover requirements are high, but as a result, the product is affordable and consistent.
- Eligibility: UK-registered limited company or LLP with two years of trading history and £350,000 annual turnover. Over 50% of revenue must come from trading activities. Must be a homeowner.
- Decision speed: Undisclosed.
- Minimum turnover: £350,000 per year
- How to apply: Apply online or by phone.
Capify Unsecured Business Loan
- APR: Average effective APR of 67.89% on a £24,000, one-year loan.
- Funding available: £5,000 to £3 million. Up to 90% of monthly turnover.
- Available terms: 3 months to 12 months.
- Additional Fees: £249 to £749 processing fee, depending on loan size. All loans incur an origination fee of up to 6% and a monthly service fee of £24.90.
Capify was founded in 2018 with the goal of providing simple, quick, and responsible access to capital. Capify is designed for commercial borrowers who require short-term (3-12 months) capital with manageable monthly repayments. Capify takes small, regular payments, either daily or weekly. This could fit your cash flow better than a large monthly repayment, but the numerous fees add up to a significant amount. Merchant Cash Advances are also available.
Customers benefit from a dedicated account manager and UK-based support. Capify’s Trustpilot rating may appear strong at 4.5 out of 5, but it’s lower than that of many of its competitors.
There are two ways of looking at Capify. Some may see it as a business version of payday loans (extremely expensive and short-term), while others may see it as a good option for large companies to access liquidity, much like a bridging loan, only more accessible with no security. Capify has high borrowing limits but only lends up to 90% of monthly turnover, which is more conservative than many others.
- Eligibility: UK-based businesses with over 12 months of trading history. A minimum monthly turnover of £10,000 is also required.
- Decision speed: Same day approvals and funding within 24 hours.
- Minimum turnover: £10,000 a month.
- How to apply: Apply online or by phone.
Unsecured Business Loans Offered By Banks
Lloyds Bank Small Business Loans
- APR: 11.2% APR representative*
- Funding available: Up to £50,000
- Available terms: Flexible
*The representative APR is an illustration of the highest rate Lloyds expect to offer up to 51% of successful applicants.
Lloyds Bank claims to approve 9 out of 10 business loans and overdrafts, which include three different business loans, depending on your company size and the amount you wish to borrow. Lloyds Bank offers secured and unsecured loans for amounts as low as £1,000 up to £50,000. If you want to borrow more than £25,000, you can choose a variable rate.
When you apply for a business loan of up to £50,000, you may need to provide:
- Proof of any other existing finance
- Details of assets you could use as security, including the estimated value of your business
- A profile of your business, including the experience and track record of its owners and management team
- Documents showing how much money you and/or the management team have personally invested in the business.
Depending on the specific details of the loan you apply for, Lloyds may also ask you for:
- Details of business assets and liabilities
- Historic financial accounts
- Management accounts
- A business plan covering the borrowing term
- Cashflow forecast covering the borrowing term.
- Minimum borrowing of £1,000
- Sole trader, partners and directors authorised to borrow on behalf of your business are all accepted.
Metro Bank Business And Commercial Loans
- APR: Typically 9.6% fixed APR for loans up to £25,000, for amounts over this, the interest rate is tailored to each loan.
- Funding available: £2,000 to £60,000.
- Available terms: 1 year to 5 years.
- Additional Fees: Early repayment fees may apply to all loans. No other fees under £25,000. Over £25,000, valuation fees, legal fees and or administration fees may be charged.
Metro Bank launched in 2010 as the first high street bank to open in the UK in over 150 years. In hindsight, it was a bridge between the traditional high street bank and the modern challenger model.
Their unsecured business loan is relatively straightforward and accessible. However, it scores very positively with customers when it comes to service, ranking higher than Lloyds, Virgin Money, Bank of Scotland, and TSB for SME overdraft and loan services.
Being a traditional bank, the decision speed may not be as fast as specialist online lenders, but the APR is competitive, and the product is suited to smaller companies looking for a small loan.
- Eligibility: Available to Metro Bank Business Current Account customers and a minimum turnover generally applies.
- How to apply: Apply in a Metro branch.
- Decision speed: Undisclosed.
- Minimum turnover: A maximum turnover of £2 million, though they do consider exceptions.
TSB Business Loans
- APR: 9.9% APR representative.
- Funding available: £1,000 to £25,000.
- Available terms: 1 year to 10 years.
- Additional Fees: Arrangement fee applies, from £100 to £250 for loans up to £15,000. For amounts over this, you’ll be charged 1.5% (with £250 as a minimum).
TSB launched in its current form back in 2013, making it fairly new on the high street bank scene. That being said, ‘TSB’ has been a household name for many years, thanks to its long history with the Lloyds Banking Group. TSB was acquired by Spanish bank Sabadell in March 2015 and now has over 550 branches across the UK.
TSB offers two business loan products: a base rate loan with a variable interest rate and a fixed loan with a fixed interest rate. Both are available on either a secured or unsecured basis. Despite generous ranges for their secured loans, TSB’s business loan terms state that unsecured loans are only available in amounts from £1,000 to £25,000. However, the 10-year term is highly sought after for long-term growth projects.
A survey carried out of SME customers with business current accounts by BVA BDRC ranked TSB 11th overall, with just 55% of SMEs surveyed willing to recommend them. Only 48% of respondents praised TSB’s services in branches, which is supposed to be a traditional bank’s strong point. On a more positive note, these figures are up from previous years.
- Eligibility: UK-based business.
- Decision speed: Undisclosed. But once approved, your funds should be available within 48 hours.
- Minimum turnover: Undisclosed.
- How to apply: Apply in branch, by phone or online.
Virgin Business Loans
- APR: Unspecified. For the Base Rate Loan, it varies according to the Bank of England rate.
- Funding available: £30,000 to £10 million across three products (Base Rate Loan, Fixed Rate Loan, Sonia Loan).
- Available terms: Up to five years (20 for the Base Rate Loan).
- Additional Fees: No early repayment fees. Arrangement and other fees may apply.
Virgin Money is well-known in the UK’s banking sector and in October 2024, they merged with Nationwide. Rather than a quick solution to cash flow problems, Virgin Business Loans are geared towards long-term development.
Virgin Money keeps things simple with just three loan products one based on the BOE Base rate, one with fixed interest rate and one based on the Sterling Overnight Index Average (SONIA) rate designed for those who are comfortable with variable interest rates. Their fixed-rate loan (five-year term) and Base Rate Loan (20-year term) differ only in the way the APR is agreed. In fact, you can start an agreement with the former and be migrated to the latter after five years. Interest can be paid monthly or quarterly, while the interest-only options mean repaying the principal at the end of the term.
- Eligibility: UK-based, and applicants must be 18 or over. A business purpose for the loan is required, and a trading history of over 12 months.
- Decision speed: Enquiries will be responded to within 7 days.
- Minimum turnover required: Not specified.
- How to apply: In branch, by phone or online.
Barclays Unsecured Business Loan
- APR: Representative APR is 11.2%. This is higher on loans under £5,001 and lower on loans above £10,000.
- Funding available: £1,000 to £25,000, with up to £100,000 for Barclays Business Banking customers.
- Available terms: 1 year to 10 years.
- Additional Fees: No arrangement fees and no early repayment fees on loans up to £25,000.
Barclays is a global banking giant with origins dating back to 1765. There’s a Barclays branch in most towns across the UK, though they have been working on their online platform transformation to improve accessibility.
For loans between £1,000 and £25,000, Barclays offers one of the most transparent options available, featuring an easy-to-use unsecured business loan calculator on its website. This shows your monthly payments and the likely interest rate.
To access loans of up to £100,000, business owners must have an existing relationship with Barclays, as the bank will need to calculate a provisional lending limit based on the business’s financial health.
Barclays also offers a 3-month repayment holiday for loans under £25,000 (longer on larger loans). This means that while interest accrues, you don’t need to make any repayments just yet. This is designed for loans that fund a project where the expected ROI won’t kick in for a while.
- Eligibility: UK-based sole trader, partnership, limited company, charity, club or association.
- Minimum turnover: Undisclosed.
- Decision speed: Get a quote online in minutes if you’re borrowing less than £100,000. Then, a full decision is usually made “within a few days” and the cash should appear in your account within 48 hours of signing paperwork.
- How to apply: Apply in branch, by phone or online.
Shawbrook Unsecured Business Lending
- APR: Undisclosed fixed interest rate.
- Funding available: £25,000 to £150,000.
- Available terms: 1 to 5 years.
- Additional Fees: A £200 acceptance fee applies, and early repayments are subject to specific terms.
Shawbrook is a specialist lender and savings bank. Founded in 2011, the company grew at a time when many other challenger banks were arising. However, service was a priority, and Shawbrook didn’t want to abandon traditional principles despite not having any branches. Because of their diverse set of products, including FSCS-protected savings accounts, Shawbrook has the capital and diversification to offer competitive lending solutions.
Being a regulated bank, its approach to risk is stringent. For loans under £100,000, two filled accounts are required, while four are required for loans over £100,000. This makes Shawbrook inaccessible for new companies, not to mention potential homeowner requirements. Like a traditional lender, Shawbrook also wants details on how the funds will be spent.
- Eligibility: UK-based, incorporated business. A trading history of 3 to 5 years is required, depending on the loan size. All individuals with a shareholding of over 25% must provide a personal guarantee, and for loans exceeding £75,000, one must be a homeowner.
- Minimum turnover: No minimum.
- Decision speed: Undisclosed.
- How to apply: Apply online.
What are unsecured business loans?
Unsecured loans do not require assets as security for the loan amount. This means that no specific asset, like a property or vehicle, is in danger of repossession should you miss repayments. This suits smaller businesses that have no major assets or do not want to endure the longer application process required to value secured assets.
For unsecured loans, lenders assess your credit history and the health of your financial position, considering factors such as cash flow, balance sheet, and cash reserves. Unlike secured lending, an unsecured loan is usually dischargeable (written off) if your business goes insolvent.
However, most lenders will ask for the protection of a personal guarantor. It’s best not to think of unsecured loans as being protected from personal liability.
How can my business get an unsecured loan?
To get an unsecured loan, you can apply directly to a lender or use a broker. The benefit of using a broker is that they often have access to products that aren’t public. Businesses are presented with a wider range of lenders, and, like homeowners using a mortgage broker, the broker’s hard work is usually paid for by the lender (in the form of a commission) rather than by the borrower. Going directly can make sense when you have an existing relationship with the lender.
Regardless of the route you choose, you must undergo identity checks, provide proof of address and give evidence of the company’s financial health. Bank statements, financial accounts, and tax returns are standard methods for assessing a company’s financial health. Business plans and cash flow forecasts aren’t typically required for online lenders, but banks may request them.
Unsecured business loans are popular because they’re fast. With online lenders, expect approval within 24 to 48 hours, and funding to come soon after. Banks, however, can take weeks.
Advantages
- No collateral: No specific asset is secured against the loan
- Accessible for new businesses: Assessment can often be based on merit and recent performance, rather than relying solely on large assets or a credit score.
- Fast application process: These loans eliminate the need for a valuation of the secured asset (e.g., a building survey), saving time.
- Fast funding: Unsecured loans are typically processed faster than most other loan types.
- Lower upfront fees: Being a simpler loan, arrangement fees can be lower.
Disadvantages
- High interest rates: Having no asset secured is riskier for the lender, so the cost of the loan is often higher.
- Personal guarantee: You are still personally liable for defaulting on the loan.
- Smaller loan amounts: Less suited to borrowing large amounts over a long period.
Will my business qualify for unsecured business loans?
Typical eligibility requirements are a trading history of at least 6 or 12 months, though some may require 24 months. Lenders will typically require evidence of profitability, consistent revenue, and the ability to repay the loan.
A good credit score opens up more options. Some lenders require a good score, while some alternative lenders accept a mediocre score if you provide strong recent performance. Some lenders claim applications by limited companies will not impact your credit score. A personal guarantee will usually be required, unless you can find a guarantor.
The amount you borrow will play a big role in whether you qualify. The larger the loan, the more trading history and higher revenue will be required. Additionally, some lenders may exclude high-risk industries, requiring you to seek more specialised options or a broker.
Which businesses typically use unsecured business loans?
Given the popularity of unsecured loans, a wide range of businesses utilise them. However, they are suited to smaller, newer companies because large assets are not required for security.
Businesses that are struggling with cash flow often turn to unsecured business loans because they’re fast. Their shorter duration also makes them ideal for temporary issues, such as seasonal drops in sales, rather than a 5-year development project for a large construction company.
Startups also prefer unsecured business loans because they typically lack sufficient collateral to secure a loan. If you win a contract with a retailer to stock your product, an unsecured loan may be the fastest way to scale up production to meet that order.
What is the average unsecured business loan rate?
10% APR is a ballpark figure that unsecured loans are frequently advertised at, with a general range of 7% to 20%. The lower range is sensitive to movements in the Bank of England base rate.
Loans with interest rates under 10% are typically either government-backed, which are highly competitive to obtain, or those offered by high-street banks, which are notoriously strict in terms of creditworthiness and business plans.
The APR you are offered will depend on both you and your business’s creditworthiness, recent financial performance, loan amount, and the lender in question.
| Feature | Secured Business Loan | Unsecured Business Loan |
|---|---|---|
| Collateral | Required. An asset (like property, equipment, or vehicles) is used to secure the loan. | Not required. The loan is based on the business’s creditworthiness. |
| Lender Risk | Lower, as the lender can seize the collateral if you default. | Higher, as there’s no asset to recover if you default. |
| Interest Rates | Typically lower due to the reduced risk for the lender. | Typically higher to compensate the lender for the increased risk. |
| Loan Amount | Generally higher, as the amount you can borrow is tied to the value of the collateral. | Generally lower, as the lender is taking on more risk without collateral. |
| Repayment Terms | Often longer, ranging from 3 to 25+ years. | Usually shorter, often from 3 months to 5 years. |
| Application Process | Slower, as it involves asset valuation and additional legal checks. | Faster, with approvals often happening within minutes or hours. |
| Risk to Borrower | You risk losing the asset used as collateral if you fail to repay the loan. | No risk of losing a specific asset, but a personal guarantee may be required, which places the responsibility of repayment on the business owner. |
| Best For | Established businesses with valuable assets seeking a large, long-term loan for investments like property or machinery. | Businesses needing quick access to a smaller amount of cash, or those without significant assets to offer as collateral. |
Is a personal guarantee required for an unsecured business loan?
Yes, a personal guarantee is a common requirement for an unsecured business loan. Should you fail to make repayments within the agreed timeframe, this can lead to personal assets being at risk of seizure and even bankruptcy.
A misconception is that a limited company structure always protects the owner or company directors from being personally liable for business debts. This is true until a personal guarantee is signed, which then erodes the legal separation between owner and business.
An unsecured loan for a limited company without a personal guarantee is possible if the business has exceptional financial health and a strong trading history.
How to get an unsecured business loan?
The process of obtaining an unsecured loan begins with self-assessment and evaluating the business’s needs. Different types of unsecured business loans have varying eligibility requirements, so it’s essential to understand which loan types are not suitable for your application.
Once you have shortlisted the loan types your business may qualify for and would meet your lending needs, you need to check the eligibility requirements of the specific lenders offering this loan type.
A broker is often the best way to find and secure an unsecured loan. A good business loan broker should have access to an extensive range of lenders, some of which may not be available if you approached the lender directly. They should also know what type of loan you are likely to be approved for after assessing your business.
What are the different types of unsecured business loans?
Term loans: Term loans are a traditional lending agreement where a fixed sum of money is borrowed for a fixed period of time. An interest rate is agreed upon, and repayments are made on a regular basis (typically monthly). This is easy to budget for, but has less flexibility for changing needs.
Fast, short-term business loans: Modern, fintech lenders have optimised this product for speed. Loan applications are streamlined and automated through simple online forms, allowing cash to be released within one to two business days. Examples include Iwoca, Fleximize, and LoveFinance.
Revolving credit facility: This works like a pot that you can dip into. A credit limit is agreed upon (for example, £50,000), and you can use it as needed. You only pay interest on what you have drawn down and for the number of days until repaid. This is ongoing, and there is often a fee for non-utilisation.
Business overdraft: An overdraft allows you to overspend on a specific bank account. It’s a short-term safety net, with interest accrued on the overdrawn amount on a daily basis. There is typically no fee for non-utilisation.
Business credit card: A business credit card is a means of accessing credit through card purchases, whether online or in person. This helps track business and employee spending. A set credit limit is agreed upon, and it works similarly to a personal credit card, often with spending rewards. If you clear the balance each month, you typically won’t be charged interest.
Merchant cash advance: A merchant cash advance is a lump sum of cash, similar to a loan, but it’s repaid automatically as a percentage of future card sales. A percentage is agreed, and this is applied to all card transactions until the merchant cash advance is fully repaid. It’s automatic, so there’s no risk of missing repayments, and repayments align with business performance.
Which bank loan alternative is right for me?
Choosing the right loan depends on your urgency, revenue model, and the amount you need to borrow.
For a one-time injection, a fast online loan can help capitalise on new opportunities, such as boosting retail stock for a popular product, or help out in an emergency, like replacing a broken oven in a bistro cafe. In both instances, you need proof of positive cash flow and to be comfortable with regular repayment terms.
For companies struggling with their cash flow due to unexpected costs, a revolving credit facility can be a helpful option. Here, you can take what you need, when you need it, and repay it when you have the means (but hopefully quite quickly, as it’s an expensive loan). A business overdraft can achieve a similar thing but on a smaller scale, such as a struggling, low-revenue phone repair shop.
A merchant cash advance has some unique use cases, such as overcoming low seasonal sales periods. Companies with strong card sales can usually secure favourable terms. While it’s expensive, it offers peace of mind, making it also great for lifestyle businesses that don’t want the stress of meeting repayments.
How much can you borrow with an unsecured business loan?
Unsecured business loans typically range from £1,000 to £750,000. Online lenders often cover the full range of this, while bank loans may be slightly more conservative. With these two options, it heavily depends on the application (financial health, creditworthiness, etc.)
Revolving credit facilities and merchant cash advances also operate in a large range, between £2,000 and £250,000.
Business overdrafts and credit cards both have a smaller range of financing available, typically between £500 and £50,000.
Who are unsecured loans for?
A secured loan is typically preferred if the business can afford the longer application process, as they are generally more affordable. However, not all companies have the time or enough assets required as collateral. This means that unsecured loans are often for working capital, which means paying staff on time, buying new supplies to fulfil sales, and investing in marketing. This borrowed money helps maintain or increase sales, along with meeting other liabilities.
Unsecured loans can be utilised by larger companies to execute a management buyout or merger, or to finance growth projects and costly marketing campaigns. This is typically found in tech and other sectors where assets that can be used as collateral are scarce.
Will I be charged any other fees?
There are more fees to consider than just interest. Depending on the lender and product, you could be charged for:
- Early repayment fees: Paying off a loan early can help reduce the total interest paid, depending on the loan terms. However, some lenders will charge early repayment fees, typically around 1-2% of the remaining balance, to offset the interest lost due to early repayments.
- Late repayment fees: A penalty for missing a repayment deadline. Often around £50.
- Arrangement fees: This is an administrative fee for organising and underwriting a loan. It can often be paid upfront or added to the loan.
- Annual fees: Common with credit facilities and credit cards, where a yearly fee is paid for maintaining access to your pool of credit.
- Legal fees: These can be incurred with more complex lending products.
What should businesses consider before applying for an unsecured loan?
While it’s important to verify eligibility before applying for any unsecured loan, the more crucial assessment is determining affordability. Between borrowers and lenders, there is asymmetric information (you know more about your situation than the lender). Therefore, approval doesn’t always equate to being affordable.
Assessing the total cost of credit can help you decide between lenders, but it’s also important to scrutinise the repayment structure and associated fees. Will the loan provide a positive return on investment? If it’s not for growth but survivability, is the loan only delaying insolvency or acting as a more permanent remedy? You must confront the reality of being a personal guarantor.
Finally, consider how urgently you need the funding. You don’t want to unnecessarily get rejected by rushing applications, as this can harm your credit score, nor do you want to rule out a bank loan if there’s a likelihood of approval.
FAQs
If you default, the lender may increase the interest and/or add fees. They might also send the loan to a collection agency. If unsuccessful, the agency can take you to court and possibly garnish your wages or place a lien against your home. Your personal credit score will also drop.
Speed varies from provider to provider, but typically a decision is made within a day, and funding can be the day after approval.
Lenders often mitigate this risk of unsecured loans by requiring a personal guarantee from the business owner(s), whereby they essentially become “secured” by the owner’s personal assets.
Yes, there are options for a start-up loan. If you have six months of trading history, there may be options with online lenders if you show evidence of early revenue. For startups with zero trading history, a government-backed loan may be your best option, but it will require a strong application. Otherwise, a personal bank loan may be an option.
There are 3 main ways:
- A Limited Personal Guarantee is a specified limit to the amount of debt that can be collected from you personally if your business fails to pay.
- An Unlimited Personal Guarantee means that an unlimited amount of debt can be collected from you personally if your business fails to pay.
- A Blanket Business Lien, as a form of security, means that the lender can seize all your business assets to repay the loan.
Your choice of lenders will be limited, but it is still possible to obtain a business loan. Check out our guide to business loans for bad credit.
Getting a business loan is unlikely without applying to a pre-revenue, government-backed start-up loan scheme. There could be other possibilities within crowdfunding.
Yes. During the application process, a hard check may be performed, which will appear on your credit report. Too many applications or rejections can damage your score.
Missing repayments or having a high credit utilisation ratio can also hurt your business’s credit score.
The primary risk of obtaining an unsecured business loan is overestimating your ability to repay and failing to meet the agreed-upon repayment schedule.
Should your business fail to repay the loan and have signed a personal guarantee, you become responsible. This can lead to the debts being sold to debt collectors, thereby risking the loss of your personal assets or even bankruptcy.