Loan structures
Secured vs unsecured business loans
The single biggest fork in business borrowing. Offering security usually buys you a larger amount, a longer term and a sharper rate. It also puts a real asset on the line. Here is how to weigh the two.
A secured business loan is backed by an asset the lender can recover against if the loan is not repaid, most often property but sometimes equipment or another business asset. An unsecured loan is not, so the lender is relying on how your business trades.
That difference drives almost everything else: the amount available, the term, the rate, how long assessment takes, and what happens if things go wrong. What it does not change is that both are business-purpose lending, and both usually still involve a personal guarantee from the directors.
The options
What each one actually is
-
Secured business loan
Backed by an asset the lender can recover against. Generally larger amounts, longer terms and sharper pricing.
- Suits
- Larger or longer-term borrowing where you have security available and the cost saving is material.
- Watch out for
- The asset is genuinely at risk. Where the security is your home, that risk reaches past the business into your personal life.
-
Unsecured business loan
Assessed on trading rather than on pledged security. Faster to arrange, generally smaller and shorter.
- Suits
- Working capital, opportunities that will not wait, and businesses without property to offer or unwilling to offer it.
- Watch out for
- Costs more and runs shorter. "Unsecured" rarely means no recourse: expect a personal guarantee and often a general security agreement over the business.
Run your numbers
What the rate difference is actually worth
Enter the two offers you are weighing up. We do not publish rates, because the only figures that matter are the ones you have actually been quoted for your business.
Secured offer
- Monthly repayment
- Total cost of finance
Unsecured offer
- Monthly repayment
- Total cost of finance
On these figures the offer costs less in total.
Note the conflict: the offer has the lower monthly repayment, by , but it is not the cheaper option overall. A longer term lowers the repayment while increasing what you pay in total.
You are comparing different terms, which is realistic, since secured facilities usually run longer. Just be clear that some of the repayment difference is the term rather than the rate.
What this cannot price for you: security means a lender can take a specific asset. Where that asset is your home, the consequence of a bad year reaches past the business, and no interest saving values that trade-off on your behalf.
Estimates only, for general information. Not a quote and not an offer of finance. Actual repayments, fees and approval are set by the lender.
At a glance
Side by side
| Secured | Unsecured | |
|---|---|---|
| Backed by a specific asset | Yes | No |
| Typical amount available | Higher | Lower |
| Typical term | Longer | Shorter |
| Typical cost | Lower | Higher |
| Assessment and paperwork | More, often including valuation | Less |
| Personal guarantee likely | Yes | Yes |
| What is at risk on default | The pledged asset | The business, and you under any guarantee |
How to actually choose
The honest answer
Run the arithmetic before you decide on instinct. Use the calculator above with the two offers you actually have: on a small, short facility the dollar saving from securing it is often smaller than people assume, and it may not justify putting an asset up. On a large, long facility the same rate gap compounds into a serious number.
Then weigh the part the calculator cannot show you. Security means a lender can take a specific asset. If that asset is your home, the consequence of a bad year is not confined to the business, and no interest saving prices that risk for you.
One more thing worth knowing: "unsecured" is not the same as "no consequences". Most unsecured business lending still asks directors for a personal guarantee and often registers a general security interest over the business, so the difference between the two is narrower than the labels suggest.
FAQs
Common questions
Can I get a business loan without putting up my house?
Yes. Unsecured business lending is assessed on how your business trades rather than on property, and asset finance is secured against the equipment being purchased rather than against your home. Neither requires residential property. What you can borrow and what it costs will differ from a property-secured facility, and the lender sets both.
Does unsecured mean the lender has no recourse?
No, and this is the most common misunderstanding. Most unsecured business loans still involve a personal guarantee from the directors, and many lenders register a general security interest over the business assets. Unsecured means no specific asset is pledged as security, not that there are no consequences if the loan is not repaid.
Is a secured loan always cheaper?
Usually the rate is lower, because the lender carries less risk. Whether the overall deal is cheaper depends on fees, the term and any valuation costs, and on how much you are borrowing. On a small, short facility the saving can be modest once the extra costs and time are counted.
Which one is faster?
Unsecured is generally the quicker of the two, because there is no security to value and register. We do not quote turnaround times, because they depend on the lender, your paperwork and how complete the file is when it is submitted.
The right answer depends on your numbers.
A comparison page can show you the shape of the decision. Which option is actually cheaper for your business depends on what the lenders would offer you, and that is the part we do.
An enquiry is a conversation, not an application. We won't submit anything to a lender without your say-so.