Unsecured business loans

• UK-based limited companies or sole traders

• Businesses trading for at least 12 months

• Firms with regular income and healthy cash flow

• Companies without significant physical assets

• Directors comfortable providing a personal guarantee (if required)

It may not be suitable for startups, or businesses with poor credit and no repayment plan.

When assessing applications, lenders look at:

• business turnover and trading history

• credit score (business and/or director)

• outstanding debt or existing liabilities

• repayment affordability

• use of funds (optional)

Most unsecured lenders will require at least 6–12 months of trading history. Some may request a personal guarantee, especially for loans over £25,000.

There are various ways to get an unsecured business loan. You could approach a high street bank or financial broker, or use a lending marketplace like Funding Options by Tide. Your business needs to have been registered in the UK for a minimum of six months, should have a UK bank account, and have a minimum turnover of around £5,000 per month. 

To speed up the application process, prepare these documents:

• Recent business current account statements

• 6-month annual returns (profit and loss accounts) are not always required, but could help in certain instances. 

• Accounts filed with HMRC

The amount of unsecured business finance you can get varies from lender to lender. The amount on offer will also depend on your annual revenue, credit score, and the financial situation of your business. 

The majority of unsecured business loans are for £1,000 to £1,000,000. Businesses will need strong credit and financial history to support loan sizes of more than £500k.

• Higher interest rates: Since unsecured business loans carry higher perceived risk to the lender interest rates can be higher.

• Personal guarantee: In lieu of collateral, some lenders ask directors to sign a personal guarantee when taking out an unsecured business loan. A guarantee makes you personally liable for the loan.

• Reduced loan amounts: Secured loans usually provide funding for a percentage of the value of the asset used. So, if you were to take out a secured bridging loan with a property worth £500,000 as collateral, you could get up to £375,000 in funding. Unsecured loans don’t offer this advantage, so your borrowing limit is reduced.

Interest is usually charged on the loan amount. This means as well as repaying what you owe, you will also pay a percentage of what you borrow as interest.

Use our business loan calculator to determine how much the loan could cost you. 

APR: The APR is the Annual Percentage Rate, which is how much the borrowed funds will cost you over the course of a year. For example, let's say you borrow £10,000 at an APR of 10%. If you take out an interest-only loan, you would be charged £1,000 in interest across the year. 

APR can get confusing because it’s more common for borrowers to pay part of the loan across the year as well as the interest, so if you start with a balance of £10,000, your balance will likely decrease across the year meaning you would pay less and less in interest each month.

Fixed rate: A fixed rate is an agreed percentage that will remain the same throughout the loan term. Opting for a fixed rate loan can help with budget planning.

Variable rate: A variable rate means the interest rate can fluctuate depending on the economy and the lender.

Factor rate: A factor rate is a type of pricing mechanism used in some business financing options, particularly merchant cash advances or short-term business loans. Unlike an interest rate, which is typically expressed as a percentage of the loan principal, a factor rate is a multiplier applied to the original loan amount to determine the total repayment amount.

Let’s say, for example, your business borrows £10,000 with a factor rate of 1.2, the total amount to be repaid would be £10,000 x 1.2 = £12,000. Factor rates are usually expressed as a decimal (e.g., 1.1 to 1.5) and don’t account for a specific time period like interest rates do, which means they do not change over time. Repayments are often made daily or weekly until the full amount is repaid.

Depending on your agreement with the lender, you could be charged some of the following fees on top of interest:

• Late repayment fees: This is charged if you miss a payment or pay late

• Admin fees: You could be charged for setting up the loan, however, this is more common when applying for a secured business loan as you may have to pay for a valuation of the asset used

• Arrangement fees: Arrangement fees are charged by lenders as a fee for setting up the finance, they vary from lender to lender

• Legal fees: If you want to seek independent legal advice and decide to use a lawyer to assist you in setting up the funding, they may charge you

To meet the eligibility criteria, you must be over 18, your business must be based in the UK, and you should have been trading for more than 6 months. You should also be able to afford the loan you want to apply for.

Example: Let’s say you make £10,000 in revenue per month and your expenses are £8,000. Your monthly repayments for a loan you’re applying for would be £1,000, in this instance, you may be able to afford the loan and therefore it’s possible you are eligible.

If you can’t afford the loan via cash flow, consider if you have any other means of repaying the loan that you can present to the lender to demonstrate eligibility, for example:

• Savings

• An upcoming payment from an investor

• A signed deal with a new client

• A strong business plan

• Funds owed to you in outstanding invoices

Only you can truly decide if you should apply for an unsecured business loan, but here are some questions you might like to ask yourself to help you come to a decision: 

• Do I want to use assets as collateral for a loan? Unsecured business loans do not require the use of assets as collateral, but they do usually come with higher interest rates than loans that do require security. 

• Can I repay the loan? What if something goes wrong, for instance, what if a client delays payment or the economy takes a sharp and unexpected downturn? If something like this were to happen, you would still be expected to repay the loan in full. 

• Am I happy to have my credit score checked? Many lenders check credit ratings, either personal or business scores, sometimes both. Sometimes, to counteract the riskier nature of unsecured loans for the lender, they may also request further information, such as asking for a personal guarantee from the company director or cash flow projections. 

• How much money do I want to borrow? Unsecured business loans tend to have lower borrowing limits than secured loans, again, due to the higher perceived possible risk to the lender. If you’re seeking a very large loan, a secured loan may be in greater alignment with your goals. 

Maybe. That depends a lot on the lender, your personal circumstances, and the specific loan you’re applying for. 

Due to the lack of an associated asset, unsecured loans can carry greater risk for the lender, and a personal guarantee can be a desirable way for them to mitigate some of that risk. 

While a personal guarantee could help you negotiate a more favourable interest rate, and they can sometimes help speed up the application process, if you’re really against putting one up, consider using financial projections as a way to demonstrate to the lender that you are able to repay the loan in full.  

Again, that depends a lot on your unique circumstances, however, unsecured business loans can be a suitable loan option for new limited companies since they don’t require the use of assets as collateral, and many young businesses find that they are without assets during their initial growth period. 

In fact, the government Start Up Loan scheme is specifically targeted to businesses under the age of 3. They provide up to £25,000 in funding, as an unsecured loan, with the interest rate set at 6%.

Yes, unsecured business loans usually impact credit scores. In general, if repayments are made on time, efficiently, and consistently, an unsecured business loan could, over time, have a positive impact on the company’s credit score. 

However, if payments are missed or if the company defaults, this would cause their credit score to go down. 

Furthermore, applications usually include a hard search, which is often added to your company credit rating and can cause your score to go down even if you’re making regular, consistent payments. This hard search is removed after 12 months have passed. 

That depends on the loan and loan type. 

An unsecured revolving credit facility or company credit card will likely need to be repaid at the end of each month to avoid high interest charges. 

A merchant cash advance, on the other hand, would require proportional payments to be made as sales are generated, meaning repayment timelines could vary. 

Speed varies significantly across lenders. Some lenders are able to review applications and deliver the funds in just a few days, while others can take months. You can improve your chances of a fast application process by ensuring all information is accurate and correctly formatted at the time of the application. If speed is important to you, get a quote here and let our expert advisors know you’re looking for fast funding. 

In many cases, yes - some lenders offer early repayment without penalties.