Unsecured loans for UK business owners

What is an unsecured business loan?

An unsecured business loan allows a business owner, sole trader or limited company to access finance without having to use company assets as security. As well as an option for businesses with no assets, unsecured business loans could suit companies that would rather not put forward their valuable assets as security. 

You may, however, have to provide a personal guarantee or a director’s guarantee. This means if your business can’t repay the loan, you’ll have to step in and repay it.

How can I get an unsecured business loan?

There are various ways to get an unsecured business loan. You could approach a high street bank for financial broker, or use a lending marketplace like Funding Options. Your business needs to have been registered in the UK for a minimum of six months 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)

• Accounts filed with HMRC

• 6-month trading history

• Personal guarantee from a director

What’s the maximum amount I can borrow?

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 £5,000 to £500,000. It would be rare for a lender to offer more than £500,000 (unless the business owner has a long and demonstrable history of business successes).

4 types of unsecured business loans

Aside from unsecured term loans, merchant cash advances, revolving credit facilities, overdrafts and business credit cards are also forms of unsecured business finance. Let’s take a closer look at the main features of these options. 

1. Merchant cash advance

A merchant cash advance is an unsecured loan that is repaid as a percentage of your customer card sales. As the lender has visibility into your business’ cash flow, you can bypass the need for extensive credit checks or security. 

Your business repays what it can afford, as a fixed percentage of monthly sales. If sales dip, the amount taken by the lender is also reduced, so you can get a better handle on your business finance requirements. The lender will also charge a fee.

You might be able to borrow between £10,000 to £350,000, with more on offer from specialist lenders. You need to have been trading for a minimum of six months and take on average £10,000 per month in debit and/or credit card sales.

What can you use it for?

Several business purposes including:

• Repairs

• Stock

• Working capital

• New machines

• Technology upgrades

• IT investment

2. Revolving credit facility

A revolving credit facility is a type of unsecured lending that gives business owners a chance to withdraw money, spend it, repay it, and then withdraw more as and when they need to. It’s a flexible approach to borrowing and there’s no need for security. 

As with a merchant cash advance, the amount on offer will depend on the size of your business and credit history. The range is usually between £1k and £20m. 

Revolving finance can be useful for businesses that experience sharp fluctuations in cash flow. It is sometimes used by companies that have, at times, low or negative cash balances in order to support their working capital needs. 

It’s considered a form of short-term financing that is usually paid off quickly.

What can you use it for?

Several business purposes including:

• Developing new products and services

• Staff recruitment and training

• Cash flow management 

• Purchasing stock or equipment

• Paying emergency or unexpected bills, such as repairs and renovations

• Supplementing traditional business loans

3. Business overdraft

An overdraft charges interest on the overdrawn amount, unlike a business loan that carries fixed repayments and interest. You can negotiate an increase in your limit to reflect your current requirements, pending approval from your lender.

Business overdrafts are probably the most common type of unsecured funding on the market, but they’re usually used for short-term expenditures and small amounts. The average business overdraft ranges from £500 to £50k. 

What can you use it for?

Several business purposes including:

• Cash flow issues

• Unexpected bills

• One-off expenditures

4. Business credit cards

Business credit cards are a flexible form of business funding that are typically used for day-to-day expenses. With an average financial position, your business can expect to secure a credit card with a limit of between £1,000 and £10,000. 

Credit cards can be useful for businesses with lots of miscellaneous day-to-day expenses and strong monthly cash flow. Ideally, they should be repaid at the end of every month, otherwise interest charges will accumulate. 

What can you use it for?

Several business purposes including:

• Day-to expenses

• Employee entertainment

• Unexpected costs

• Emergency expenses

How are secured business loans different?

Unlike an unsecured business loan, a secured business loan requires your business, as the borrower, to provide a business asset as security for the loan. This could be commercial property, vehicles, plant and machinery or your accounts receivable.

The amount you can borrow through secured finance depends – to a large extent – on the value of the asset offered as security. The amount you can borrow through an unsecured loan will usually be a multiple of your annual business turnover. 

Unsecured finance tends to be quicker to arrange because you don’t need to go through the asset valuation process. You’ll probably get the funds quicker but interest rates are usually higher because there’s a higher level of risk to the lender.

Are you ready to apply?

Every business has different needs, circumstances and goals. At Funding Options, we’ll match you with our panel of over 120 lenders to help find you the best deal. Start by telling us how much funding you need, what it’s for and how quickly you need it. It’s free to apply and it won’t affect your credit score.