Unsecured business loans vs. secured business loans: choosing the right option for your business

An unsecured business loan doesn't need any asset as security, so it's usually faster to arrange but comes with higher rates and a lower borrowing limit. A secured business loan is backed by an asset such as property, equipment or invoices, which lets you borrow more at a lower rate over a longer term, but puts that asset at risk if you can't keep up repayments. The right choice depends on how much you need to borrow, what you have available as security and how comfortable you are taking on that risk.

What's the difference between secured and unsecured business loans?

The main difference comes down to collateral. Secured loans use a business or personal asset as security, which reduces the lender's risk and usually means a lower rate and a bigger loan. Unsecured loans skip that step entirely, so they're quicker to set up but cost more and cap out at a smaller amount.

Rates and timeframes are illustrative examples based on typical UK market ranges. Your own offer will depend on the lender, your credit profile and the asset you're securing against, so always check the terms of any offer before signing.

What is an unsecured business loan?

An unsecured business loan is finance you can access without putting up any asset as security. Instead, lenders base their decision on your business credit score, trading history and cash flow. That makes unsecured business loans a good fit for smaller amounts you need quickly, such as covering a cash flow gap or funding a short term project. If you only need a small amount for day to day spending rather than a lump sum, a business credit card can sometimes be a simpler alternative.

What is a secured business loan?

A secured business loan is backed by an asset you or your business own, commonly commercial property, equipment or outstanding invoices. Putting up security gives the lender a fallback if things go wrong, which is why secured business finance usually comes with a lower rate and a longer repayment term than the unsecured equivalent. It suits businesses borrowing larger amounts, funding property or equipment purchases, or refinancing existing debt over several years.

Which type of loan suits your business?

If you’re deciding which is right for your business, you can weigh up these five factors before you decide:

• Your business credit score. A strong business credit score opens up more unsecured options at better rates. If your score is weaker, a secured loan can still be within reach because the asset does more of the work.

• How much you need to borrow. Smaller, shorter term needs usually suit an unsecured loan. Larger amounts, especially for property or big equipment purchases, tend to need security to get the rate and term down to something affordable. You can run the numbers through our business loan calculator to see how the loan size and term affect your monthly repayments.

• What assets you have available. You need a suitable asset with enough value to offer security. Without one, unsecured is the only route open to you regardless of the amount.

• How much risk you're comfortable taking on. Secured lending puts a real asset on the line if repayments slip. If you'd rather keep your assets entirely out of the equation, an unsecured loan avoids that risk, even at a higher rate.

• What the loan is for. Working capital, stock or a short term cash flow gap points towards unsecured finance. Property purchases, major equipment or refinancing point towards secured finance.

Compare unsecured and secured business loans through Capitalise

At Capitalise, wework with a panel of 130+ UK lenders covering both unsecured and secured business loans, so you can compare real offers side by side rather than guessing which route suits you. Apply for business loan finance through Capitalise and we'll match you with lenders that fit your credit profile, the amount you need and whatever security you have available. Just click apply to get started.

For more insight, watch our video on secured vs unsecured business loans from Head of Funding, Nick Richardson.