Business loans account for around 8% of funding for small and medium businesses in the UK and for those wanting to borrow money, the choice between a secured and an unsecured loan is significant.
With secured loans, you can use an asset you own such as your home or car, as collateral. This kind of borrowing is known as “asset-based lending”, and it allows lenders to seize the asset (or assets) if you're not able to pay back the loan.
However, no collateral is required to get an unsecured loan. These loans depend on things like a firm's cash flow, balance sheet, savings, and credit history instead.
I've also picked out what I think are some of the best on the market, from traditional UK banks, non-traditional lenders, and peer-to-peer platforms.
| Provider | Score | Details |
|---|---|---|
| 1. Tide | ★★★★★ | Learn more |
| 2. Metro Bank | ★★★★★ | Learn more |
| 3. Barclays | ★★★★★ | Learn more |
| 4. TSB | ★★★★★ | Learn more |
| 5. Fleximize | ★★★★★ | Learn more |
| 6. Yorkshire Bank | ★★★★★ | Learn more |
| 7. Nucleus | ★★★★★ | Learn more |
| 8. Funding Circle | ★★★★★ | Learn more |
| 9. Iwoca | ★★★★★ | Learn more |
| 10. LendingCrowd | ★★★★★ | Learn more |
At a glance — The pros and cons of unsecured loans
Unsecured loans can provide your company with some much-needed cash but there are risks to be aware of and debt should never be taken on lightly. Here I've listed some of the main pros and cons to think about.
| Pros | Cons |
|---|---|
| ✔️ No collateral: the primary benefit of an unsecured loan is that it does not require you to put your business or personal assets at risk. | ❌️ Higher interest rates: unsecured loans tend to have higher interest rates. |
| ✔️ No seizures: the lender of an unsecured business loan has no legal right to seize any of your company's assets in the event of a default. | ❌️ Reduced loan amounts: you may not be able to borrow as much with an unsecured loan as you might with a secured loan. |
| ✔️ Low fees: costs connected with an asset valuation are usually paid by the borrower which means an unsecured company loan may be cheaper, but the interest rates may be higher. | ❌️ Harder to get: lenders will have a list of requirements they need to see before they will agree to a loan. |
| ✔️ Reduce the time it takes to apply: it can be a lot quicker to take out an unsecured loan. | ❌️ The value of a good credit score: if you have a low credit score, your application for an unsecured business loan may be denied. |
| ✔️ Extensive selection of service providers and products: there is a wide variety of options for unsecured company loans on the market. |
Best unsecured business loans
Unsecured loans ranging from a few thousand to several million pounds are available from a range of lenders and brokers. If you're looking for an unsecured loan, keep reading.
Here I've chosen some of what I think are the best unsecured loans to choose from, don't forget to check it's covered by FSCS protection before you take one out.
Provider | Min Loan | Max Loan | Max Term | APR |
|---|---|---|---|---|
1. Tide | £500 | £500,000 | 6 years | Variable |
2. Metro Bank | £2,000 | £60,000 | 5 years | 9.6% |
3. Barclays | £1,000 | £100,000 | 25 years | 11.50% |
4. TSB | £1,000 | £1M | 10 years | 9.94% |
5. Fleximize | £10,000 | £250,000 | 3 years | 1.5% (monthly interest rate) |
6. Yorkshire Bank | £1,000 | £25,000 | 15 years | Variable |
7. Nucleus | £25,000 | £150,000 | 5 years | Variable |
8. Funding Circle | £10,000 | £500,000 | 6 years | From 6.9% |
9. Iwoca | £1,000 | £500,000 | 2 years | 2%-6% (monthly interest rate) |
10. LendingCrowd | £75,000 | £500,000 | 5 years | From 6.90% |
1. Tide — Top alternative lender to high street banks
Number one on my list of the best unsecured business loans is Tide. The company focuses on providing the right unsecured loans for your business. Now, I found that multiple types of unsecured loans and credit options are available through Tide, including start-up loans, business cash advances and more.
I noticed that the provider will make it easy to compare business loans without affecting your credit history.
However, to borrow money, I noticed you’ll need to complete a credit check. Since the loans are unsecured, if you cannot repay the loan or make monthly payments, you will not need to provide collateral or assets as security. I advise that, just like credit cards, interest applies.
With this type of loan, when borrowing £25,000, the interest rate you'll face is 6% as a fee for borrowing the funds. However, I advise that if you have a poor credit score, you'll face higher interest rates in addition to your monthly repayments. I also noticed that your loan amounts and loan terms will determine the total interest you pay.
For example, with Tide, I noticed that if you borrow £25,000 over 12 months, with a 6% interest rate, you'll have to pay £819.92 as the total interest amount. In this case, I found that short term business loans, such as six months, will lead to lower interest totals with Tide. In our example, you can expect a total of £439.34 if your loan repayment period is six months.
With the start-up loan being an unsecured loan, you will not face early repayment charges, which may be ideal for your financial situation. I found that it will save you interest costs.
Business owners can qualify for Tide's business loans if they are UK residents and legally allowed to work in the UK. You must have a UK-based business, and your business should not be more than 36 months old. You'll also need to run a limited company, partnership, or sole trader.
2. Metro Bank — Top-rated unsecured business loans
When it opened its doors in 2010, Metro Bank became the first new high street bank in the United Kingdom in more than 150 years.
They have revolutionised the high street by keeping branches open late and a prominent online presence. Metro's website terms and conditions indicate that the bank provides safe unsecured business loans on a “subject to status” basis. Only by applying will you learn whether your company meets the requirements.
Submit your application to the branch. Customers with a Metro Bank Business Current Account are eligible, and a minimum monthly transaction volume applies. No payments are required under £25k. Valuation costs, legal expenses, and/or administrative fees may be incurred if you are borrowing above this.
For loans up to £25,000, the standard interest rate range is between 9.6% fixed APR and 15% variable APR. In most cases, a minimum annual revenue of £2 million is required, however, exceptions may be made.
Up to £25,000 is readily available, with higher sums considered on an individual basis. You can repay the money in over one to five years.
Metro Bank also offers unsecured loans to qualified businesses with the help of the British Business Bank and its Enterprise Finance Guarantee programme. Businesses with annual sales of less than £41 million who do not have collateral to receive a traditional loan but have a solid business plan may qualify for this programme.
3. Barclays — Popular unsecured business loans for businesses
Established in 1690, Barclays has grown to become a global financial powerhouse.
Barclays has locations in many UK high streets, and the bank has lately pledged to maintain its ‘last in town' locations, making it possible to do business at a physical location in all but the most distant places.
Send in your application or submit it in person, over the phone, or online. Any individual, group of individuals, corporation, charity, club, or organisation may make use of this service. If you need a loan of less than £100,000, you can get an online quotation in a matter of minutes. After that, you should have a final decision “within a few days”, and funding in your account within the next 48 hours.
The average annual percentage rate (APR) for a loan of this kind is 11.5%. Amounts from £1k-£25k are generally available, with a maximum of £100,000 for clients of Barclays Business Banking.
Contract lengths range from 1 to 25 years. Barclays has one of the most open and accessible offers for loans between £1,000 and £25,000 thanks to their user-friendly unsecured business loan calculator on their website. Your estimated interest rate and monthly instalments are shown immediately.
Larger loans for company owners, up to £100,000, need an established connection with Barclays. Because the bank has to evaluate the stability of your company before deciding on a temporary lending limit for larger loans. If you fit this description, you may get a loan for up to the maximum amount allowed by the temporary lending limit and have the money in as short as 24 hours.
Barclays is a good option since they give a grace period of six months when you first take out a loan. Although interest will accumulate during this period, you will have some opportunity to put the borrowed funds to good use.
Due to the low, set interest rate and emphasis on long-term relationships with company clients, this is one of my top deals for unsecured small business loans on the high street.
4. TSB — Top unsecured SME business loans
The latest iteration of TSB first appeared in 2013, making it a relative newcomer to the world of high street banks.
With its lengthy association with the Lloyds Banking Group, however, TSB has become a household brand. Since its acquisition by the Spanish bank Sabadell in March 2015, TSB has expanded to more than 550 locations throughout the United Kingdom.
Send in your application or submit it in person, over the phone, or online. Only companies headquartered in the UK can apply.
However, after approval, the money should be in your account within two business days. Loans up to £15,000 are subject to an arrangement charge ranging from £100 to £250. Over this amount, there will be a 1.5% fee (minimum £250).
Interest rates are typically about 9.94% APR. The range of loans is from £1,000 to £1M. TSB offers two types of business loans: a base rate loan with a variable interest rate and a fixed loan with a fixed interest rate, with durations ranging from one year to ten years. Secured and unsecured versions of each are on the table.
TBS's criteria for business loans claim that although they provide a wide spread for secured loans, they only lend between £1,000 and £25,000 for unsecured loans. However, among the companies evaluated here, their 10-year contract is among the longest.
5. Fleximize — Well-reviewed UK unsecured loans for businesses
Established in October 2013, Fleximize takes great satisfaction in its ability to provide quick and versatile financing in as little as 48 hours.
The loan duration may be shortened by making prepayments without penalty, and more funds can be added to the loan at any time.
Fleximize encourages firms who have been denied elsewhere to apply directly for this financing method since the lending requirements here may be different from those of a typical bank.
Send your application in over the internet or by phone. But, UK limited companies and LLPs, can't apply until you've been in business for at least six months. Guernsey, Jersey, and the Isle of Man are not included. A decision will be made within 24 to 48 hours. When you apply in person, there are no costs involved.
A monthly interest rate of 1.5% is usual. Minimum monthly sales must exceed £5,000. The range of loanable funds is between £10,000 and £250,000 (or up to two months of income). There is a 1-month – 36-month range for terms.
With a stellar 4.8/5 TrustPilot rating based on 291 reviews from their corporate clients, they come highly recommended for both their adaptable service and the availability of a personal relationship manager.
6. Yorkshire Bank — Trusted local unsecured loans
With this bank, a quick online application can be submitted securely in about ten minutes.
You need to have been in business for 18 months as a limited liability company in the United Kingdom and have one set of financial statements on file with Companies House. There will be a decision in the next 48 hours.
Unsecured business loans up to £25,000 typically have an annual percentage rate of 10.2%. You need at least £5 million in annual sales. Once again, the maximum unsecured loan amount is £25k. Contract lengths range from 1 to 15 years.
A few years back, Yorkshire Bank underwent a complete rebranding to become Virgin Money. I wouldn't be put off by the rebranding though, as ‘business as usual' will continue uninterrupted throughout the changeover.
The application procedure is streamlined at Yorkshire, and they have one of the simplest forms I've seen for an unsecured business loan. Customers may get an online estimate in 10 minutes and a final verdict in 48 hours.
7. Nucleus — Top unsecured business loans for early repayment
Since its inception, Nucleus Commercial Finance has extended loans totalling about £1.2 billion. The bank takes itself in its “human approach”, with staff accessible by phone 24/7, and provides the security and scalability of bank financing with the quick choices of an alternative lender.
Submit your application online. You must have been in business for at least three years, be based in and a legal resident of England and Wales, and show consistent profitability in your most recent financial statements.
The duration of the application procedure, which includes filling out an online form, making a phone call, and exchanging papers, is not specified. However, if an offer is accepted, the money is accessible on the spot.
Borrow between £25,000 and £150,000. There is a wide range of payment plans available, from 3 months to 5 years. Cash Flow Finance is an unsecured loan product offered by Nucleus; in addition to a three-year trade history, eligibility also requires that you own your own house. However, there is no need to panic; they will not make any claims on your possessions.
Nucleus is an alternative lender, so may provide discounts. If you pay off your loan in full before the end of your term, they’ll knock 10% off your total. The bank has minimal restrictions on how the money may be used, demanding only that it be utilised to grow the firm.
8. Funding Circle — Unsecured loans for businesses with fast account opening
Peer-to-peer lenders act as matchmakers between investors and businesses seeking loans over the internet. By eliminating the middlemen, both lenders and investors benefit from better rates and more favourable conditions. Since 2014, FCA rules have brought a measure of oversight to the sector, and there are now limits around how much can be invested among other things.
In 2010, Funding Circle (review) was established as a P2P marketplace. Funding Circle is a lender that has helped over 54,000 firms in the United Kingdom access a total of £5.8 billion in loans, and it has just acquired £150 million in financing from the government-led British Business Bank.
Annual percentage rates (APRs) typically begin at 6.9%. You may get a loan between £10,000 and £500,000. The repayment schedules range from six months to six years.
Funding Circle is a P2P lending platform that pools money from tens of thousands of investors and lends it out to small companies. Don't worry, no one investor will be checking in with you since they only loaned you a fraction of a per cent of their total capital.
It focuses on small companies and has an application procedure that takes less than 10 minutes, as well as personalised service and additional financing if necessary.
9. Iwoca — Alternative unsecured small business loans
Aiming to make banking “feel like a superpower, not a headache”, Iwoca was founded in 2011 with a huge, bold brand that looks to be targeting tiny, independent firms. To date, Iwoca has loaned over a billion dollars to more than 50,000 consumers, with over three hundred and thirty million dollars arranged in 2018.
You must be a sole proprietorship, partnership, or limited liability corporation located in the United Kingdom.
Have a decision made within one business day. The origination charge for a business loan is 6%. All loans have a monthly interest rate of between 2% and 6%, depending on the lender. Loan amounts range from £1,000 to £500,000. There are 24-month options available.
An excellent development is the bank's receipt of a ten million pound grant from the Capability and Innovation Fund (CIF), a programme of the Banking Competition Remedies fund. This is a great example of the power of iwoca since it helps to support challenger banks with the goal of increasing competition in the banking system.
The above-mentioned product is one of several choices available via iwoca. Another alternative is a credit facility known as Credit Lines. Both new and existing businesses may make use of this, however, new businesses have a maximum credit limit of £10,000.
10. LendingCrowd — Alternative unsecured business loans
LendingCrowd was founded in 2014 and has been helping people “think outside the bank” ever since. And it has done just that, using a financing strategy that is unique among P2P sites and based on an auction system known as the “Loan Market”.
Please submit your application online. You must be a limited liability partnership (LLP) or a corporation limited by shares (2 years of filed accounts showing cashflow suggesting a capacity to repay), have experienced management, and have a solid business strategy in order to be considered.
After a loan auction is completed successfully, a decision will be made within 10 days. All loans obtained via brokers incur an extra cost of 4% of the total loan amount. There is a late charge as well. The initial rate is 6.90%. There has to be at least £100,000 in annual sales. Loan amounts range from £75,000 to £500,000. Six-month to five-year terms are on offer.
A LendingCrowd panel will evaluate your company in around 24 hours so that you may post your capital needs on the loan market. LendingCrowd uses this evaluation to provide a letter grade between A+ and C+, which in turn establishes the interest rate. This might be anything from 5.95% (for an A+ company) to 12.25% (for a C+ company).
Investors on the LendingCrowd Loan Market are either automatically matched with loans or given the option to hand-pick their investments.
Top unsecured business loans — Buying guide
What should you know about unsecured business loans?
What is an unsecured business loan?
Unsecured loans function in the same way as unsecured individual loans. Cash is provided to the company, and they repay it in monthly or quarterly payments over a certain length of time.
The loan's outstanding balance incurs interest at the agreed-upon fixed or variable interest rate. A lender may add an origination fee to the total amount owed in order to cover their costs in setting up the loan.
In the event that the firm defaults on an unsecured loan, the lender may be left with few options, as opposed to a secured loan where some asset of the business or business owner (such as property) is pledged as security against the debt. Unsecured loans often have a higher interest rate than their secured counterparts since the lender is taking on more risk.
Unsecured loans are more difficult to qualify for and get than secured loans for the same reason. Lenders want assurance that the potential payoff is worth the level of risk being taken.
Where to look for an unsecured loan?
Numerous options exist for businesses seeking an unsecured loan.
#1 Bank loans without collateral
Both secured and unsecured medium- to long-term business loans are available at most major banks. Unsecured loans often have higher interest rates and need more extensive underwriting procedures by the lending bank to ensure the borrower firm is solvent.
Since the credit crisis, it has become harder to get unsecured loans from financial institutions. However, it is still a good idea to look at this option since banks provide highly competitive interest rates and cheap arrangement costs.
#2 Peer-to-peer loans without collateral
P2P lending platforms, such as Funding Circle, Zopa, and RateSetter, are a relatively new kind of business lender that provides unsecured loans for terms of up to 5 years.
P2P loan interest rates are competitive with or even lower than those offered by unsecured bank loans, however, they often come with arrangement or completion costs. The absence of prepayment penalties is a major benefit over traditional bank loans.
#3 Loans without collateral from specialised commercial lenders
Many new firms, like Ezbob, are challenging traditional banks by providing unsecured, short-term loans. These loans often come with higher interest rates than those offered by banks and P2P lending platforms, but the requirements for receiving one are generally less stringent.
#4 Government-sponsored, unsecured lending programmes
The British Business Bank is a government-backed financial institution that helps companies of all sizes receive lower interest rates on long-term, unsecured loans from traditional financial institutions. A firm that has planned its borrowing needs ahead of time can benefit greatly from such loans, despite the long application procedure.
Unsecured business loan alternatives
Businesses that are wanting to grow or fill a short-term cash flow void have access to more than just unsecured loans.
#1 Guaranteed loans
Putting up collateral for a loan is unnerving because the lender stands to obtain ownership of the business's valuables if the company defaults on its loan payments.
However, it does allow for reduced interest rates if there is a high degree of trust that the firm will be able to repay the loan. Another way to reduce the danger to the company is to utilise the asset that is being purchased with the loan as collateral.
#2 Overdraft provision
An overdraft facility from a company's usual business bank may be available as an alternative to a loan. Although the interest rate on an overdraft is often greater than that on a loan, it might be utilised to bridge a short-term gap in funding if necessary.
In the same vein as an overdraft, but independent of a checking account, is the revolving credit facility. Instead, the loan is structured as a revolving line of credit, with interest accruing only on the amount actually used by the company. Multiple lenders provide these types of credit lines, and unlike traditional banks, they often don't impose setup costs.
#3 Credit cards for enterprises
Business credit cards, another kind of unsecured financing, may streamline and simplify your daily spending. Although many credit cards provide a 0% interest promotional period on debt transfers and purchases, interest rates on credit cards are often higher than on loans. Each issued card also often incurs an annual fee.
#4 Director-guaranteed loans
If the company's directors agree to bear personal responsibility for repaying the loan, even if the company has a bad credit rating or no assets to use as collateral, the company may be able to acquire unsecured financing.
If you sign a contract obligating you to personally service a debt that your company can't pay back, you essentially give up the liability protections provided by your company's limited liability status and expose yourself to the risk of personal bankruptcy. This choice has to be given great thought.
Leading unsecured business loans: The verdict
If you're looking for a loan for your business and you don't want to risk your assets being seized, an unsecured business loan could be a good option.
They are very common in the UK and there's a huge range to choose from. There are also lots of different lenders to choose from, from traditional banks like Barclays to peer-to-peer lenders such as Funding Circle.
Before you apply, think carefully about how much money you need, how you will repay it, and over what timeframe you can make repayments. No debt is worth it if you won't be able to manage and pay it back, and if you miss a payment or it's late, this will impact your credit score and you could pay a fine.
