Unsecured Business Loans

Unsecured business loans allow businesses to borrow money without offering collateral. In contrast to a secured loan, there are no specific assets offered as security in case of default. Interest rates are slightly higher for unsecured vs secured, in exchange for the higher risk taken on by the lender. Traditional banks and fintech lenders both offer unsecured loans, typically over 1-6 year terms.

During the COVID-19 pandemic, the UK government launched schemes such as CBILS (Coronavirus Business Interruption Loan Scheme) and RLS (Recovery Loan Scheme)  to support UK businesses through the tough times. However, these schemes have now ended, and almost all lenders offering unsecured loans require directors to sign a personal guarantee. This is a promise made by the director(s) to pay back the loan if the business goes bust and defaults on their loan obligations. Since the lender has no charge over the business assets, a personal guarantee is a way of the lender sharing some of the risk burden with the borrower.

How does an unsecured loan work? Company A wants to borrow £250,000 for expansion. A lender agrees to lend the Company £250,000 over 6 years. The funds will usually be paid back following an amortization schedule. The loan will usually be repaid in equal monthly installments, made up of principal and interest.