Unsecured loans v secured loans – what’s best for your business?

If you’re considering applying for finance for your small business, you will, no doubt, have come across the terms ‘secured loan’ and ‘unsecured loan’, and you may be wondering which type of business loan is right for your business. 

For the most part, secured and unsecured business loans are very similar (although property loans can differ). You get a lump sum, then pay it back in installments with added interest. The key difference comes if you are unable to pay off the loan.

Here we explain the differences between unsecured and secured loans to help you decide which one is right for your business.

Unsecured loans

With an unsecured loan, you do not put forward any assets as a security. That means you don’t have to give up your property, land, or other assets if you can’t make the repayments. The lender may ask instead for a personal guarantee, or simply trust that you are creditworthy enough to repay the loan.

Secured loans

Alternatively, with a secured loan, you put forward something of value as a ‘security’. This could be property, land, equipment or other assets. If you stop repaying your loan the lender can take this asset and can sell it to recover the unpaid amount. The loan is secured against the asset or assets chosen.

What type of loans do Funding Circle offer?

Business loans from Funding Circle are unsecured. They’re a quick and easy way to get an affordable cash injection for your business.

Unsecured business loans provide a simple, low-cost way to borrow for your business. Access finance of £10,000 to £500,000 for working capital, growth or expansion, with fixed monthly repayments that will help you plan with confidence.

Asset finance is a type of secured loan. You can finance a wide range of assets through Funding Circle’s trusted asset finance partners and it’s a great option if you want to borrow a large amount.

Secured loans allow you to borrow more for your business (up to £5 million) as you can use business assets as collateral. If your business can’t pay back the loan in full, the proceeds from the sale of assets can be used to pay off the outstanding amount. 

Advantages of unsecured loans

Unsecured loans are usually quicker to apply for as they require no valuation of assets. They are also a useful option if your business doesn’t have any high-value assets that you can use as a security.

Advantages of secured loans

Secured loans typically have lower interest rates than unsecured loans because they are less risky for lenders. However, the interest rate you receive will depend on your credit score, income and other factors.

Secured loans may allow you to borrow larger sums of money than unsecured loans, which can help you make an investment in equipment or machinery that wouldn’t be available otherwise. 

Will I need a personal guarantee?

Sometimes unsecured loans can have a higher interest rate as the lender is taking a greater risk. Being creditworthy enough to qualify can also be very difficult. Providing a personal guarantee can counter both these problems.

Although you do not need to provide business assets as a security, we ask for a personal guarantee on our unsecured business loans. 

If, however, you would prefer to keep your personal finances completely separate, a secured loan may be your preferred option.

How much can I borrow from Funding Circle?

You can borrow £10,000 to £500,000 with an unsecured Funding Circle business loan.

With a secured loan you can borrow up to £5 million through Funding Circle’s trusted asset finance partners. 

What can I use a Funding Circle loan for?

You can use an unsecured business loan for almost any purpose, including:

• Helping with payroll
• Hiring new staff
• Business growth
• Making a one-off payment

Secured loans can be used to fund almost any asset, or borrow against existing assets to gain extra working capital. Some of the most common assets we help with are:

• Cars, vans, HGVs and other vehicles
• Construction equipment
• Plant, machinery and manufacturing equipment
• Tractors and farming equipment
• Office equipment

How do I apply?

When deciding whether to apply for a secured or unsecured loan, it’s important to consider your financial situation and goals.

If you have collateral to offer, or will use the loan to buy assets, a secured loan may be a good option as it often comes with lower interest rates and longer repayment terms.

If you don’t have collateral, an unsecured loan may still be a good option, providing faster payouts and more flexibility.

Additionally, your creditworthiness, income, and other factors will also play a role in the type of loan you can qualify for and the interest rate you receive.

Check your eligibility and apply on our website. Simply fill in our 10-minute application form, and you could receive a decision in as little as 1 hour. Once you accept your offer we’ll deposit money into your account typically within 48 hours.

07/03/24: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.