Unsecured business loans: how they work and what lenders look for

An unsecured business loan is a loan that does not require the borrower to put up any asset as collateral. A secured loan, by contrast, is backed by property or other assets that you own, which the lender can turn to if the loan is not repaid.

With no asset behind the loan, the lender’s decision rests on the business itself: how long it has traded, what comes through the bank account and how it has handled credit before. It is one of the funding types covered in our business finance guides.

You borrow a fixed sum, the lender pays it to the business, and you repay it in instalments with interest and fees. The process usually runs like this:

1. Decide how much you need, what it is for and what repayment the business could carry in a quiet month.
2. Gather the documents: recent business bank statements, your latest filed accounts, management accounts if you have them, and details of existing borrowing.
3. The lender assesses the application, subject to status and its own criteria. A full application may involve a hard credit search on the business and its directors.
4. If the lender makes an offer, it sets out the amount, the term, the rate, the fees and any guarantee it requires. Read the guarantee as carefully as the loan agreement.
5. The funds are paid to your business account and you repay in fixed instalments until the loan is cleared.

Most loans are repaid monthly. Some lenders collect weekly or daily, which changes how the loan feels in your cash flow, so check the collection pattern as well as the amount.

The term loan is the main type, and several other products are also offered without asset security. The descriptions below are general: each lender’s product differs.

Lenders look at whether the business can afford the repayments from its trading cash flow, because there is no asset to fall back on. As a general guide, an application is judged on:

• Trading history. How long the business has traded and how steady its income has been.
• Bank statements. Turnover through the account, the pattern of balances and any returned payments.
• Affordability. Whether the new repayment fits alongside rent, wages, tax and existing borrowing.
• Credit history. The record of the business and of its directors, including any court judgments.
• Existing debt. What is already owed, to whom, and what security those lenders hold.
• The people behind it. Who the directors are and what stands behind any personal guarantee.

There is no single score or threshold that secures a loan. Each lender sets its own criteria, and no lender is obliged to lend.

An unsecured business loan costs interest plus fees, and the total depends on the lender, the term and how the lender views the risk. We do not quote typical rates, because they vary too widely to be useful. These are the components to ask about:

• Interest. Whether the rate is fixed or variable, and how it is expressed. An annual rate, a monthly rate and a flat total cost are not directly comparable.
• Arrangement fee. A charge for setting up the loan, sometimes taken from the amount you receive.
• Early repayment terms. Whether settling early reduces the interest you pay, and whether there is a charge for doing so.
• Late payment charges. Fees and default interest if an instalment is missed.

Ask every lender for the total cost of credit in pounds, including all fees, and compare that one figure. Our guide to comparing lenders on total cost sets out what else to check.

The main risk is the personal guarantee. A personal guarantee is a legally binding agreement under which a business owner or director is personally liable for repaying the loan if the business defaults or becomes insolvent. A limited company normally limits what its owners can lose to what they invested. A guarantee sets that protection aside for the guaranteed debt.

• What a guarantee puts at risk. Personal assets such as your home, vehicles and savings. The British Business Bank advises taking independent legal advice before signing. Our guide to personal guarantees for business loans covers this in full.
• A charge over the company. Some lenders take a charge over the company’s assets alongside a loan described as unsecured. Check the offer for one, and read what a debenture is if you see the word.
• Fixed repayments in a slow month. Instalments do not fall when sales do. Test the repayment against your worst recent month, not your average one.
• Borrowing on top of borrowing. A second loan taken to service the first is a warning sign. Speak to the lender early if repayments are becoming difficult.

The FCA has recorded small-business representatives saying that personal guarantee requirements can be a significant barrier to seeking finance, and that guarantees are commonly required where a business lacks collateral.

An unsecured business loan is the right tool when an established business with steady cash flow needs a fixed sum for a defined purpose and has no suitable asset to offer, or prefers to keep its assets free.

It is the wrong tool in these situations:

• The need is caused by customers paying slowly. Funding the invoices themselves usually fits better.
• You are buying a vehicle or equipment. Asset finance is secured on the item, so it does not use up your unsecured borrowing.
• The repayment would only be affordable in a good month.
• The loan would cover ongoing losses. Borrowing delays that problem and adds a cost to it.
• You are not prepared to give a personal guarantee and the lender requires one.

If one of the UK’s largest banks declines your application, it must offer to refer you to a government-designated finance platform. This is the Bank Referral Scheme, in place since 1 November 2016 under the Small and Medium Sized Business (Finance Platforms) Regulations 2015.

Where the application is unsuccessful and you agree, the bank must pass the information it holds about the application to the designated platforms. The British Business Bank says the details are passed on by the next working day. HM Treasury says your data is shared only with your consent, and that the platforms share it with finance providers in anonymous form.

HM Treasury’s July 2026 statistics describe the scheme as covering nine of the UK’s biggest banks and three designated finance platforms. Capzy is not a designated platform under the scheme; the current list is on GOV.UK.

That last figure describes this scheme only. It is not the chance of approval with any lender or through any broker. The government consulted on the scheme in late 2025 and said on 11 May 2026 that it does not propose legislative change at this stage. A referral is one route: you remain free to approach other lenders or a broker yourself.

The main alternatives raise money against something specific: your invoices, your card sales or an asset.

• Invoice finance releases cash from unpaid invoices to business customers, and the funding grows with your sales.
• A merchant cash advance is repaid as a percentage of card sales, so collections move with your takings.
• A secured loan may be available for a larger amount or a longer term, in exchange for security over property or other assets.
• For a business trading for less than five years, a Start Up Loan is a government-backed personal loan of £500 to £25,000 at a fixed 7.5% a year, repaid over 1 to 5 years.

Capzy is a credit broker, not a lender: we introduce your business to lenders whose criteria fit it and help you compare the offers that come back. We are paid by the lender. You can check your funding options with a soft search, which does not affect your credit score. A full application to a lender may involve a hard search.

To see who lends in this market, browse the unsecured loan lenders in our directory. Every offer is subject to status and lender criteria, and a loan is never guaranteed.