Guide to Unsecured Business Loans for SMEs

When running a small business, having access to working capital can be the difference between thriving and surviving. Whether you’re covering a short-term blocker to cash flow, launching a new product or expanding your team, unsecured business loans can offer quick access to funding, without having to put your house on the line!

This guide explains exactly how unsecured business loans work, what makes them different from other finance options and whether they might be a good fit for your company.

What is an Unsecured Business Loan?

An unsecured business loan is a type of finance that doesn’t require your business to provide security (such as property, vehicles or stock) to borrow money. Instead, lenders will assess your application based on your business’s financial health, trading history and credit score.

This is a popular route for many SMEs in the UK that need fast access to funds but don’t want to risk losing valuable assets.

What’s the Difference?

A secured business loan uses company assets as collateral, so if you can’t repay it, the lender can take those assets to cover the debt.

With SME unsecured business loans, there’s no asset tied to the loan. However, a personal guarantee may be required.

When Might You Need an Unsecured Business Loan?

There are several situations when SME unsecured loans might make sense:

• Bridging a cash flow gap during a slow period

• Expanding your team, product line or marketing efforts

• Upgrading equipment or premises, without dipping into savings

• Launching a new business without assets

The best unsecured loans are generally quicker to apply for than secured ones, making them ideal for time-sensitive opportunities.

How Do SME Unsecured Loans Work?

Once approved, the lender will transfer the full loan into your business account, usually within a few days. You will repay it monthly over an agreed term - usually between six months and five years. These repayments will include interest, which is based on the perceived risk for the lender.

Lenders often require a personal guarantee. This means you agree to repay the loan yourself if your business can’t. It doesn’t involve putting an asset on the line, but it is still a serious responsibility and shouldn’t be taken lightly.

What Is a Personal Guarantee?

A personal guarantee is a legal agreement where you, as the business owner or director, personally promise to repay the loan if your company defaults.

This doesn’t put your house or your car at risk in the same way a secured loan might. But the lender can pursue you through the courts if you fail to repay. In extreme circumstances, this could lead to personal financial losses..

Not all unsecured lenders require a personal guarantee, but if they don’t, you might find that the amount you can borrow is lower or the interest rate higher.

Can You Get an Unsecured Business Loan?

Here’s what most UK lenders are looking for when you apply:

1. Age

Some lenders will consider businesses trading for as little as four months, but you’ll usually need at least 12 months of trading history for a wider choice of loan providers.

2. Turnover

Most lenders require your company to make at least £10,000 per year. Some will ask for much more, depending on the size of the loan required.

3. Credit Score

Both personal and business credit scores matter. If your credit isn’t great, you might still get a loan, but expect to pay a higher interest rate.

What Can You Use an Unsecured Business Loan For?

The beauty of the best unsecured business loans is in their flexibility. You can use the funds for almost anything that will help your business grow or stay afloat, including:

• Purchasing stock

• Paying suppliers

• Hiring employees

• Launching a new product

• Marketing campaigns

• Moving premises

• Investing in new equipment

Some lenders may want to know the exact purpose of the loan, but most will allow you to use the funds however you see fit.

What Documents Will You Need?

To apply, make sure you have the following details ready:

• The amount you want to borrow

• Your business name, registered address and company number

• How long you’ve been trading for

• Your accounts and turnover figures

• Personal ID and proof of address for verification

Having everything prepared can speed up the process. Some lenders will decide within 24 hours.

The Pros and Cons of Unsecured Business Loans

✔️ Pros

• No collateral needed

• Speedy access to funds

• Flexible use

• Less paperwork

✖️ Cons

• Higher interest rates

• Lower borrowing limits

• Personal guarantees

• Stricter criteria

Are There Alternatives to Unsecured Business Loans?

If an unsecured loan doesn’t suit your needs or you don’t meet the criteria, you should instead consider:

• Secured business loans if you have assets and want lower interest rates

• Invoice finance if you want to borrow against unpaid invoices

• Asset finance if you want to use equipment or vehicles to secure a loan

• Business credit cards if you have smaller, recurring expenses

• Crowdfunding if you need funds for a product launch or a creative project

• Startup loans or Government grants for new companies

Is an Unsecured Loan Right for You?

SME unsecured business loans offer a quick and flexible way to fund your growth or cover operational costs without risking assets. They're ideal for British businesses, startups and entrepreneurs who need a short-term boost or want to move quickly on a new opportunity.

However, they’re not the cheapest option on the market, and the need for a personal guarantee adds an additional layer of risk. That said, for many businesses, the benefits will outweigh the drawbacks.

Finding the Best Unsecured Business Loans for Your Needs

Before deciding on the right funding option for your business, it’s a good idea to explore what’s available. There are plenty of lenders offering different terms, rates and features, so do your homework. To see what’s out there, you can compare unsecured business loans to find the right match for your needs and goals.