Unsecured business loans can usually be used for any purpose, from starting a business to expanding an existing one, replacing old equipment, refurbishing a property or helping with cash flow. 

But before you agree to take on an unsecured loan it’s important to know how they work and what alternatives are available, as there might be a more suitable option out there. 

If you’re looking to buy new equipment, for example, you might be better off using asset finance. Or if your credit rating isn’t as good as it could be, applying for a secured business loan might give you a better chance of acceptance. 

Speak to the team at Think Business Loans to find finance that fits your needs and circumstances. 

An unsecured business loan works in much the same way as a personal loan – if your application is accepted, you’ll be given a lump sum by the lender which you must then pay back in monthly installments over an agreed period: 

• Short-term business loans can be taken out over periods from three months to a year. 
• Medium-term business loans can last anything from 12 months to three years. 
• Long-term business loans are taken out for more than three years. Specialist loans like commercial mortgages can take as long as 25 years to repay. 

As with other loans, interest is added to the amount you borrow. The rate of this interest is based upon the amount you want to borrow and the repayment period, as well as your current financial circumstances and credit score.  

If you’ve just started your business, then your lender might use the details on your personal credit file to help inform their decision on whether to lend to you. And even though the loan is unsecured, you might still need to offer a personal guarantee. This means you will be personally liable for repayment of the loan if the business fails to repay it. 

If you run a larger, well-established business you should be able to borrow more than an early-stage startup. Get in touch with the team at Think to find out how much you can borrow. Call 0203 880 9880 now. 

The amount you can borrow depends upon the size and circumstances of your business. Lenders look at your credit score and trading history when working out how much they’ll lend to you and on what terms and may offer you an amount based on a multiple of the monthly turnover of your business. 

The main benefits of an unsecured business loan are: 

• No need to put up security - Due to there being no collateral involved (personal or business assets), unsecured loans are often a good fit for smaller businesses that would not be accepted for a secured loan due to the lack of high-value assets. 
• Quicker decision - This type of funding solution is usually a quicker and easier option to get finance, ideal for a business that needs finance quickly. 
• Use for any business purpose – Unlike other types of commercial loans that can only be used for specific purposes, an unsecured loan can be used to fund any business costs, from cash flow to refurbishments. 

• Higher interest rates - There are higher interest rates involved with this type of loan due to there being a greater risk involved for lenders. 
• Affordability is key - Unsecured business loans are based on whether the business can make repayments, so factors such as monthly or yearly turnover will be a point of focus on a decision. 
• Lower borrowing limits - A lender will put a limit on how much they are willing to lend. If a higher amount is required a secured loan may be a better option. 

An established online lighting shop is looking to expand after being open for more than ten years. They sell high-quality luxury outdoor lights, wall lights, bathroom lights, ceiling lights, floor, and table lamps, as well as chandeliers. They also offer a bespoke design service and create one-off lights from scratch. 

With the ongoing success of the company, they decide to do a refurbish their online shop to try and appeal to more customers.  

Unsure what was the best loan option for their circumstances, they approached Think Business Loans for a bit of guidance. A member of our tech-enabled team reviewed their application and decided the best option was an unsecured loan. 

Once the loan was approved and was with the client, they were able to refurbish their store without any impact on their cash flow. The refurbishment was successful as it attracted more customers which resulted in a 15% increase in sales. 

The biggest difference between unsecured and secured loans is the amount of security you need to put up to be accepted.  

Whereas unsecured business loans require no security at all, a secured business loan will need you to provide assets as security against non-payment of the loan. Assets such as commercial property, vehicles, and machinery can be used as security, and you risk losing them if you can’t keep up with repayments. 

Secured loans aren’t as risky for lenders – if you can’t repay the loan, they’ll sell the assets you provide to recoup the payment – and so you can usually secure a higher loan amount or better terms than with an unsecured loan 

Below are the pros and cons of each. 

What are the pros and cons of an unsecured business loan? 

What are the pros and cons of a secured business loan? 

Do you need to offer a personal guarantee on an unsecured business loan? 

Not all lenders will ask for a personal when you apply for an unsecured business loan. Whether you need to provide one will depend upon your personal circumstance, the lender, the amount you want to borrow and for how long. 

If you do need to provide a personal guarantee, this will be an assurance to the lender that you, as the business owner or director, will repay the loan if your business defaults on any repayments.  

A personal guarantee means you are ultimately liable for the repayment of the loan, and if you can’t keep up with repayments then the lender can take measures to recover the debt. This could see you facing legal action or even bankruptcy if you default on an unsecured business loan. 

Are unsecured business loans available with no personal guarantee? 

Not all lenders will need you to provide a personal guarantee, but this will depend upon things like your current circumstances as well as the amount you want to borrow and for how long. As the lender is taking on more risk by agreeing to lend without a personal guarantee, you might find that interest rates are higher and loan amounts smaller if you don't offer this assurance. 

If you need money for expansion, new equipment or to help get your new business off the ground, an unsecured business loan might be a good option as it gives you quick access to funds that can be used for any purpose. loan amounts.  

To find out if an unsecured loan is right for your business, give the team at Think Business Loans a call on 0203 880 9880. We’ll compare a range of solutions to help you find finance that fits your business.