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When should I use unsecured business loans?

11 March 2016
Written by Jason

Deciding whether to access a secured or unsecured business loans is a big business decision. More often than not it isn't a decision, rather a necessity. But that doesn't explain why some business owners weigh up their options and still choose the unsecured funding.


An unsecured loan often occupies the higher side loan interest rates; they are the loans that are offered without any protection, neither guarantor or secured against assets, which justify higher rates and shorter terms. Choosing an unsecured loan can result in a significant proportion of your income being required to pay back the loan, making your choice important.

Why you need an unsecured business loan
You may have held a business in the past and it perhaps didn't perform quite how you expected; let's be frank, it didn't work out. While this is a very common theme for many business owners in the UK - due to the economic issues faced within the last 7-8 years - it forces business owners to become more creative when negotiating finance.

What the combined forces of the economic downturn and your bad luck has produced is an environment where your funding options aren't so straightforward; they are limited.

You might have great current business credit and a good, well-formed business plan, but this can count for nought when approaching a bank for funding.

Imagine how difficult it must be if your credit isn't all that good?

This is where accessing unsecured business loans becomes more of a necessity than a choice. But that doesn't mean you can't choose which lenders will offer you the most support.

The advantages of unsecured business loans
The main advantage of unsecured loans in the UK is that if your business struggles to keep up with repayments, it'll be much harder for the lender to take your assets. It can also ensure that when there is a financial pinch, the lender themselves will be more amenable to negotiating a repayment plan.

On the flip side, because the loan is seen to be riskier, lenders will like to see plenty of credit history and documentation regarding the plan and expectations for the business before agreeing to any arrangement. They will likely levy a higher interest rate on repayments to reflect their perceived risk of your business.

3 reasons an unsecured loan is better:
Unsecured loans can offer benefits that can be hard to match for their secured counterpart, and when existing forms of secured credit is still tight, having an unsecured level of funding can actually liberate your business for either startup or expansion.

You don’t have enough securable assets
If you don't own enough property, plant, equipment or stock then you won't have enough assets in which to apply for a secured loan. When faced with a problem like this, it is then a choice of whether to use your own personal property as collateral for a loan or not. Many business owners prefer not to do this which leaves them with relying on an unsecured loan to fund/expand their business.

You need a large amount of capital
When starting out most business will need some level of working capital in order to get off the ground (wages, overheads, stock, transport etc.). A secured loan may not be able to offer enough, but with an unsecured business loan you may find a lender willing to offer the amount you need. Typically, unsecured loans can offer significantly more funding than similar secured loan arrangements.

You need an accessible source of funds
There are some business that rely on securing large amounts of stock or supply at short notices. Not having accessible funds at their fingertips can mean flexibility in purchasing is limited and their business isn't as competitive in their industry sector. Having the funds available through an unsecured business loan means you can take control of your financial decisions without having to await for payments or agree external financing.   

Having an unsecured loan for your business is a double-edged sword; if you do not manage them sensibly, they can cut your business badly - yet this is no different to taking any other kind of loan.

What an unsecured loan can do is offer you credit at a time when you most need it, usually when the viability of your business is on the line in some way.  To learn more about our finance packages call us today on 03330 069 141 or request a call back via our contact page.

Always explore your funding options carefully and consult your financial advisor when considering a loan.

Originally published Mar 11, 2016 11:36:39 AM, updated March 11 2016
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