Discover the most frequently asked Business banking questions
What is an unsecured business loan?
Unsecured business loans represent a type of business loans which do not require businesses to use their assets as collateral. These business loans simply require quarterly or monthly repayments, and an annual percentage rate of interest. This interest rate can either be fixed or variable. Sometimes, lenders will also require borrowers to also pay another fee simply for setting up the unsecured business loan. Unsecured business loans can either be provided by banks, or by specialist business lenders, or by peer to peer lenders, or by the government itself under special schemes.
The good side of this kind of business loans, is that the borrowing company does not run the risk of having its equipment, building, machinery, PCs, furniture or any other asset confiscated by the lender if repayments are not honoured. Such events may lead businesses to simply close their doors and cease their operations in case a secured business loan has been subscribed. This is why unsecured business loans may be the only option for start-ups or small enterprises.
However, these types of loans carry much higher interest rates than secured business loans, and involve much smaller amounts of funds borrowed. From the lender’s point of view, they are much riskier than secured business loans.
Alternatives to unsecured business loans include loans with a director’s guarantee, receivables finance, business credit cards, and bank overdrafts.