When you look for a business loan, one of the first questions a lender or broker will ask is whether you can offer security. The answer shapes how much you can borrow, how long you can borrow for, and what it costs.
Unsecured loans
An unsecured loan isn’t tied to a specific asset. The lender relies on your business’s trading performance and credit history to decide whether to lend.
Typical features
- quicker decisions, sometimes within a day or two once documents are in
- smaller amounts than secured lending, usually sized to your turnover
- shorter terms, often one to five years
- higher interest rates, because the lender carries more risk
The catch: most unsecured business loans to limited companies come with a personal guarantee from the directors. If the company can’t pay, the lender can ask you personally to make up the shortfall. “Unsecured” means there’s no charge over a property. It doesn’t mean nobody is on the hook.
Secured loans
A secured loan is backed by an asset. That’s usually property, but it can be equipment, vehicles or other business assets. If the loan isn’t repaid, the lender can take and sell that asset.
Typical features
- larger amounts, linked to the value of the security
- longer terms: secured business loans can run up to 10 years, and commercial mortgages for longer
- lower rates, because the lender’s risk is reduced
- slower to arrange, as valuations and legal work are needed
How to choose
Ask yourself three questions:
- How much do you need, and how quickly? If you need £30,000 for stock next week, unsecured is usually the practical route. If you need £400,000 to buy premises, secured lending is almost certainly the answer.
- What can you comfortably repay each month? A longer secured term can bring the monthly payment down, but you’ll usually pay more interest in total.
- What are you prepared to put at risk? Be honest about this with yourself and with your family if your home is involved.
A middle ground
Government-backed lending through the Growth Guarantee Scheme can help businesses that don’t have much security. The government guarantee gives the lender comfort, and lenders cannot take your main home as security under the scheme. Read our GGS guide for more.
Our view
There’s no universally “better” option. There’s the one that fits your plans and your appetite for risk. When we search our panel, we show you both secured and unsecured routes where they’re available, so you can compare them side by side before you decide.