The short answer
- A secured loan is backed by property or other assets. That can mean larger amounts and longer terms, but those assets could be at risk if you can't repay.
- An unsecured loan has no asset pledged against it, so it's usually quicker and simpler, but the amounts are often smaller.
- Many unsecured business loans still ask a director for a personal guarantee, so "unsecured" doesn't always mean "no personal risk".
- Which suits a business depends on how much it needs, how long it needs it for and what the owners are comfortable putting at risk.
Secured and unsecured business loans differ in one big way: whether the lender can take something you own if you can't repay. When you borrow for your business, that is one of the first questions, because it changes how much you can borrow, how quickly you can get it and, importantly, what you stand to lose if things go wrong.
What is a secured business loan?
A secured loan is backed by something of value, usually property, but sometimes other business assets. If you can't repay, the lender has the right to take that asset to recover what it's owed.
Because the lender has that protection, secured loans can often offer:
- larger amounts
- longer repayment terms
- a wider choice of lenders, particularly if your credit history isn't perfect
The trade-off is plain: your property or assets could be at risk if you can't keep up repayments. That might be business premises, or a home if it's used as the security. Secured loans also usually take longer, because the lender needs to value the asset and complete legal work.
What is an unsecured business loan?
An unsecured loan has no asset pledged against it. The lender decides mainly on the strength of the business: its trading history, turnover, bank statements and credit record.
Unsecured loans are often:
- faster to arrange, with less paperwork and no valuation
- simpler, with no legal charge over property
- smaller, with lower maximum amounts than secured borrowing
But "unsecured" doesn't mean "no risk to you personally". Many lenders ask a director to give a personal guarantee, which means you could be asked to repay from your own pocket if the business can't.
Side by side
| Secured | Unsecured | |
|---|---|---|
| Backed by | Property or assets | The business's strength |
| Typical amounts | Larger | Smaller |
| Speed | Usually slower | Usually faster |
| Main risk | Losing the asset | Personal guarantee |
Things businesses weigh up
People choosing between the two often think about four questions:
- How much do I need? Larger sums often point towards secured borrowing.
- How long do I need it for? Longer terms are more common with secured loans.
- How fast do I need it? If speed matters most, unsecured is often the quicker route.
- What would I be prepared to put at risk? That means thinking about how it would feel if an asset or a guarantee were called on.
Neither is better in every case. Secured loans are often used for larger, long-term investments, while unsecured loans are often used for shorter-term needs where the owner would rather not tie up property. What suits a particular business depends on its own circumstances, and we can't tell you which to choose.
Other options worth knowing about
A loan isn't the only way to fund a business. Depending on your situation, a merchant cash advance, invoice finance or asset finance may fit better. Our guide to getting a business loan in the UK covers how to choose between them.
Getting help comparing
We're a commercial finance broker, not a lender. We introduce your business to lenders on our panel, covering both secured and unsecured options, so you can see what's available without applying lender by lender. It's free to check, and any fee is confirmed before you proceed.
You can check your options in a few minutes, with no obligation.
Common questions
- What's the main difference between a secured and an unsecured business loan?
- A secured loan is backed by an asset, such as property, that the lender can claim if the loan isn't repaid. An unsecured loan has no asset pledged against it.
- Is an unsecured business loan always cheaper?
- Not necessarily. Because the lender takes on more risk without security, unsecured loans can carry higher rates, but cost depends on your business, the amount and the term. Compare the total repayable, not only the rate.
- What is a personal guarantee?
- A personal guarantee is a promise by a director or owner to repay the business's debt personally if the business can't. Many unsecured business loans ask for one.
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Check my optionsThis guide is general information for UK businesses. It is not financial advice, and business funding must be repaid. Kapitl Business Finance Limited is a commercial finance broker, not a lender; all funding is subject to eligibility and credit assessment.