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Unsecured Business Loans

15th November 2023

By Alex Walker

What is an unsecured business loan?

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With unsecured business loans, the theory is, you don’t secure any of your assets against the loan. When you choose this funding type, your business won’t risk losing any valuable items, property, or land.

An unsecured business loan could be a straightforward funding option. You may be able to take out a loan valued up to £500,000 without needing to put valuable assets as security.

You can access an unsecured loan fairly quickly and repay them over a short or medium term.

Unsecured business loans are a flexible way to receive funding for any business that lacks assets or wants to avoid securing its assets against a loan. Usually, you can access the funds within a couple of hours to days depending on the loan amount. Could can repay it within an agreed timeframe or early, often with no penalty.

However, depending on the strength of your business and the amount you are borrowing, the lender may insist on you providing a personal guarantee or a company debenture.

How do unsecured business loans work?

They can be structured in many ways. Here are some examples

  • Straight forward capital and repayment loan – borrow £X over Y years at Z% interest rate
  • Merchant loan – borrow a percentage of your credit card turnover with repayments deducted from each transaction – used for cash flow
  • Invoice finance – borrow against the value of you invoices yet to be paid – also known as factoring.
  • Revolving credit – works more like an overdraft but again can be attached to credit card sales
  • Overdraft – often granted by your bank giving you flexibility to draw and repay cash as required
  • Business credit cards – these are effectively short term loans allowing you to buy now and pay later

Advantages of business loan

Unsecured business loans come with several benefits. If you’re looking to borrow a sum of cash quickly without securing your assets against the loan, then unsecured loans may be suitable for you.

Suitable for new and established businesses

New and long-standing companies can use unsecured business loans.

No need to secure any assets

Because your assets are not secured against the loan, it’s a quick and accessible way to get a sum of money compared to other types of business loans.

Suitable for any purpose

You can use the lump sum towards any form of business purpose. This could include buying new equipment, funding training sessions or entering overseas markets. There are no limits to how you can use the unsecured business loan.

Quick application process

Since unsecured business loans are not secured against your assets, you may access the loan faster than a secured loan. You may be able to borrow up to £500,000 or more, depending on your situation.

Repayment plans are flexible

Many lenders offer repayment plans with no hidden fees, and interest rates can be agreed upon beforehand. You have the option to repay the loan between one month to five years.

Disadvantages of unsecured business loan

While unsecured loans can be a good way to access a large sum of money quickly, there are some potential pitfalls you need to consider.

High-interest rates

Unsecured loans pose a greater risk to lenders since they are not secured against any assets. So they are more expensive to take out. Although the loans come with high-interest rates, it may be more costly for your business if you don’t take out a loan.

Smaller loan sum

Lenders are less likely to approve large loan sums with no security. This is because it would put lenders at a higher risk. So, you’re going to have to use a smaller loan amount. This type of loan may be right for you if you’re looking for a small amount of cash without securing any of your assets. But, if you’re seeking a large sum of money, this option may not suit you unless you provide personal guarantees.

Must meet specific eligibility criteria

Since your assets are not secured against the loan, you will have to meet certain requirements. Lenders will want to minimise risk and ensure the loan is right for you. You’ll need a good credit history and show proof of consistent income. If your lender believes that you’re going to make repayments on time and in full, you will have a higher chance of approval.

Personal Guarantees and Debentures

With a personal guarantee you are agreeing to pay the business loan personally if the business fails to do so. This means the lender could force you to sell personal assets to repay the debt.
Debentures are in simple terms a charge over the business assets. Whilst the loan is not secured on a specific asset, a debenture gives the lender rights over the companies other assets if you fail to repay the loan. So whilst some unsecured loans may not feel as if they are secured on a particular asset, the lender does have significant security via the back door.

Who is it suitable for?

Unsecured loans can be helpful for businesses with high fluctuating cash flows that may have unexpected expenses. Companies with low or negative balances can use such loans as a form of working capital. Similarly loans can be used to support expansion or to purchase assets or property.

What requirements do I need to meet for an unsecured business loan?

You will need to meet the below eligibility criteria to qualify for an unsecured business loan:

  • Ideally you will have a registered company in the UK that has operated for at least six months.
  • There are special schemes for new business – even if they have not started trading yet
  • Your company needs to be a limited company, limited liability partnership, sole trader or partnership.
  • The business premises should primarily trade in the UK.
  • Your company should make at least £10,000 per year except in teh start up scenario.
  • The director or shareholder of your company needs to be over 18 years old.

What documents do I need for an unsecured business loan?

You need to prepare a number of documents when you apply for an unsecured business loan. The documents you need will depend on the lender, but generally, you will be asked to show the following:

  • Proof of identity and address
  • Business verification documents
  • Company’s bank statements
  • Personal guarantee (may be required by the unsecured loan agreement)

How long will it take for an unsecured business loan to get approved?

Unsecured loans are typically easier to gain than secured loans, and the approval process can be reasonably quick. You can expect your application to take a few days to get approved. Sometimes, your funding will be available to you on the same day as submitting your application.

Secured loans take longer to get approved since lenders need an independent valuation of the assets you intend to secure against the loan. But with unsecured loans, there is no need for this process, and funding may be available to you faster.

Is it safe to use an unsecured business loan?

Since there is no need to secure your assets against an unsecured business loan, they are deemed as a less risky option for the borrower. Keep in mind, though, that all loan types have potential risks. When you take out an unsecured loan through a regulated lender, you will get a loan agreement that is suitable for your business.

The FCA regulates many lenders. It’s also in the lender’s best interest to ensure you’re able to make repayments on time and in full. So you should not be worried about the safety of unsecured business loans so long as you do your due diligence and choose a verified lender.

Don’t forget that personal guarantees and company debentures will bring in extra risk.

Also that many business loans are not regulated so the lender could hide all sorts of penalties in the small print.

If in doubt get in touch with Promise Money.

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    Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status.

    More than 50% of borrowers receive offers better than our representative examples

    The %APR rate you will be offered is dependent on your personal circumstances.

    Mortgages and Remortgages

    Representative example

    Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66

    Secured / Second Charge Loans

    Representative example

    Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20

    Unsecured Loans

    Representative example

    Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.



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