Secured vs Unsecured Business Loans

The two main options available to UK firms interested in business loans are secured or unsecured arrangements. Which of the pair a company selects will usually depend on its ability to offer assets as security.

Loan terms, rates and eligibility criteria

The loan terms for both loan types are similar in that they can range from a few months to several years, and fixed or variable rates are also usually available for both. Additionally, the qualification criteria for either product relies on a proof of trading history and the ability to supply business bank statements and/or management accounts to support that the firm has the ability to repay sufficiently.

Each carries specific distinguishing features that are equally worthy of consideration.

Benefits of unsecured business loans

At first glance, the idea of accessing funding for business operations or expansion without offering collateral might only seem appealing to firms working in intangible asset-reliant industries – say IT or financial services. That’s far from the case, though, with unsecured business loans helping to support firms of all sectors in numerous ways:

• Funding on the fly – no asset valuations and quick lender decision making means that medium and large sized enterprises can rapidly access funding and immediately put it to use
• Continue to buy and sell assets – offering assets as collateral is often risky for firms reliant upon them or in the process of restructuring
• Tailor-made financing – there are many unsecured business loan lenders to choose from with different offers depending on what you’re looking for

Most unsecured loan providers will require a personal guarantee from all named directors.

Benefits of secured business loans

While it’s still important for firms to consider all options, secured loans can prove particularly advantageous to those companies capable of offering collateral without putting themselves at personal risk:

• Take advantage of your assets – if you’ve spent years building a strong asset portfolio, then why not capitalise on the chance to access a large amount of funding?
• Eliminate trading history from the equation – some lenders may decide that a company’s trading history isn’t as important as with unsecured loans due to their ability to offer assets as security
• Flexible funding and loan terms – as with unsecured loans, the wide-ranging nature of the lender market means that every business can find the right loan amount/length
• Lower interest rates – typically, a secured loan will attract a lower interest rate than an unsecured loan as more of the risk is passed to you

Compare business loans – which is right for you?

Having taken the time to compare the respective benefits of secured and unsecured business loans, here are the key questions to keep in mind when deciding which style of arrangement to pursue.

1. Can your business offer assets as security?
   If your firm owns mostly intangible assets or lacks the premises/equipment traditionally used as collateral, then applying for an unsecured loan is likely the more feasible route.
2. What purpose will the loan arrangement serve?
   Clarify the precise goals of your arrangement; the time and funding needed for an ambitious recruitment campaign will differ considerably from accessing extra working capital to combat late payments.
3. Which lender and arrangement will best suit your business?
   This will depend on your business situation, the stage it is at and what you hope to achieve with the loan. This is a two-way arrangement and each lender will have their own rates, unique service features such as support levels and accessibility. Each lender will also consider different things before providing you a loan, for example if you are a home owner or not.
4. How quickly do you need the finance?
   Secured loans, though often cheaper, can take longer to set-up. If you’re able to provide all the required paperwork, however, an unsecured loan can often be available in a few days.

Our expert consultants can help speed up this process and introduce you to 2-3 suitable lenders based on your needs, closely considering the loan amount, length, interest rate and other terms you’re interested in.

Other finance options

In addition to business loans, there are plenty of other finance solutions available. Perhaps you’d rather access a high percentage of your invoices’ value with invoice factoring or discounting, take advantage of asset finance to acquire equipment or alternatively leverage your card transactions to gain a merchant cash advance? You can also explore the advances available through invoice finance using our cost calculator.

Get in touch today and our team will be on hand to help find the most suitable finance solution for you.