For small and medium-sized enterprises in the UK, unsecured business loans provide a popular financing option, through their flexibility and lack of collateral requirement. These loans allow businesses to access funds without the need to provide collateral such as property or other assets.
Financing and unsecured loans are a key part of SME growth in the UK. According to a study by Merchant Savvy, £59.2 billion was lent to SMEs in 2023, and 43% of SMEs used finance in Q2 of 2024.
If this type of funding is something you are considering, the following guide will provide you with information on what unsecured business loans are, their benefits, requirements for eligibility and their way of operating in the UK.
What is an unsecured business loan?
Unsecured business loans are defined as loans that do not require the borrower to provide collateral assets as security. Instead, lenders are able to evaluate a borrower’s eligibility through other means, such as their credit score, business performance, and history with repayments.
Unsecured business loans are particularly suited to smaller and medium-sized businesses, which may not have access to larger assets that can be used as collateral or who could not take such a risk.
Key features of an unsecured loan
Some of the most attractive features of unsecured business loans in the UK are as follows:
- No collateral requirement
- Flexible loan amounts
- Shorter repayment terms
- Faster approval process
The availability of both small and larger loans is calculated through a borrower’s individual profile.
How do I obtain an unsecured business loan?
In the UK, applying for an unsecured business loan is a very straightforward process.
Rise Funding can assist with pinpointing the right lender and type of business funding for you. Either by filling out an online form, or over the phone, you can be matched with the appropriate lender quickly and easily. The Rise Funding team will guide you through each step.
As with most loans, you will be required to take a credit assessment. Your lender may ask for documentation such as bank statements or P&L accounts. The Rise Funding team can talk you through the process when you reach that stage.
Once approved, you will receive your loan offer with terms, interest rate, and repayment schedule.
Your funds will be transferred to your account, and repayment will be made in fixed instalments. On average, this is usually between 2-5 years, however will depend on your unique circumstances.
Benefits of an unsecured business loan
There are a number of key advantages for UK businesses using unsecured business loans.
No risk of asset loss
If you default on a loan, there is no risk of losing crucial assets such as property, or vital equipment for your business to operate.
Easy access
The process is often a lot quicker, with funds being received sooner due to the simpler application process.
Flexibility
Once the funds are in your account, their purpose is then up to you – use them for marketing, inventory purchase, and overall expansion – there are no limits.
Preserve your equity
Some loans require you to give up equity or ownership in order to raise funding. Unsecured business loans don’t require this, allowing you to maintain full control.
Risks of an unsecured business loan in the UK
While unsecured business loans have many benefits, there are some important points to consider, to make sure they are the right choice for your business.
Higher interest rates
To compensate for a lack of collateral, lenders will often charge higher interest rates.
Lower amounts
Compared to secured loans, you may not be able to access larger amounts of funding. For larger businesses, unsecured loans would most likely not be the right choice.
Stricter criteria
Due to the lack of collateral, lenders will often look for a strong credit history, and evidence of financial stability – for new businesses in particular, this may be a barrier to entry.
Shorter repayment periods
Often constrained to between 2 and 5 years, the relatively short repayment periods can lead to higher monthly payments. If your business is struggling with cash flow, this is an important point to consider.
How to apply for an unsecured business loan in the UK
Here is a step-by-step guide for applying for unsecured business loans in the UK.
1. Determine your requirements
Work out exactly how much you need to borrow, and what purpose the funding will have. This will give our team a clearer picture of your business, so we can match you with the most suitable lender.
2. Contact Rise Funding
Speak to us through our online form, or by phone. Once we have all the information we need, the team will generate a shortlist of potential lenders, each tailored to your specific requirements and situation.
3. Prepare your documents
It’s a good idea to have bank statements, financial statements and a business plan document ready to show potential lenders. Personal and business credit reports may also come in useful.
4. Review the loan offer
Once your offer has been sent, it’s important to carefully review the information, considering the interest rate, fees and repayment schedule.
5. Accepting the offer
Once an offer has been accepted, you will usually receive your funds very shortly after.
Alternatives to unsecured business loans in the UK
If unsecured business loans are not right for your business, look into other potential options.
At Rise Funding, we offer advice on many alternative finance options including:
Conclusion
As a versatile and relatively accessible option for UK businesses, unsecured business loans are a great financing option for small to medium-sized businesses that may be looking to expand, handle cash flow or deal with an unexpected expense. While it is important to note their higher rates of interest and potentially stricter eligibility criteria, the lack of collateral risk is a major contributing factor to their overall attractiveness.
As always, a full understanding of the benefits and drawbacks is key to making the right decision for your business.
If you’re looking for a business finance quote, but are unsure where to go, then you can get a quote via our website. We offer access to all types of lenders and also equip you with the knowledge to understand which finance product is right for you.
This quote will not affect your credit score and you can receive funding in as little as 24 hours.
