Unsecured business line of credit: how it works for limited companies

An unsecured business line of credit lets your limited company borrow up to an agreed limit without pledging business assets. You pay interest on the amount you’ve drawn and still owe, and fees may also apply. Many lenders, including iwoca, ask a director for a personal guarantee. Here’s how it works, what it costs and who qualifies.

Every new iwoca Flexi-Loan needs a personal guarantee from at least one director, but not every director has to sign, and we don't take property as security when you borrow.

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What is an unsecured business line of credit?

An unsecured business line of credit gives your company an agreed borrowing limit without pledging business assets. With a secured line of credit, an asset such as property or equipment acts as security. That is the key distinction – not whether the borrowing carries personal risk.

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Does unsecured mean no personal guarantee?

Usually not. Most lenders ask at least one director to sign a personal guarantee, which makes that director personally responsible for the debt if the company can't repay it.

The Insolvency Service describes a personal guarantee as "a legally binding agreement that the director will personally repay a debt if the company fails to meet its financial obligations" (Director information hub: personal guarantees, gov.uk, last updated May 2026). In practice, that means:

• Your home, savings and other personal assets could be used to settle the company's debt.
• Lenders are more likely to ask for one when a company is newly formed, has a short trading history or a thin credit file.
• A guarantee can be secured against a specific asset or unsecured, so read exactly what you're signing.

At iwoca, every new Flexi-Loan needs a personal guarantee from at least one director. Not every director has to sign, and we don't take a charge over your home or other property when you borrow.

Some lenders offer lines of credit without a personal guarantee, usually to larger, established companies. If a lender doesn't ask for one, check whether it takes a debenture (a charge over the company's assets) instead.

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How does an unsecured business line of credit work?

You agree a limit with the lender, draw what you need, and pay interest on the outstanding balance until you repay it. Repaid money can often be drawn again, depending on whether the line is revolving.

A typical line of credit works in four steps:

1. The lender approves a limit based on your company's finances and credit history.
2. You draw some or all of it when a cost comes up, often online and on the same day.
3. You pay interest on what you've drawn, usually through agreed repayments over a set period.
4. When you repay, that part of your limit may become available to draw again.

Interest rates on lines of credit are often variable, so the cost can move with the Bank of England's Bank Rate. Some lenders also review the limit every year and can cut or withdraw it.

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Revolving and non-revolving lines of credit

A revolving line lets you repay and redraw up to your limit for as long as the facility runs. A non-revolving line lets you draw up to the limit once, and the money you repay can't be borrowed again without a new agreement.

Revolving lines suit costs that keep coming back, like payroll ahead of slow-paying customers. Non-revolving lines suit a known, one-off need that you'd rather draw in stages, like fitting out new premises over a few months.

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How iwoca's Flexi-Loan compares

iwoca's Flexi-Loan isn't a line of credit. It's a business loan with flexible repayment options: you're approved for an amount, you draw what you need, and you pay interest only on what you owe. We don't take your company's assets as security, and a director guarantees it.

Here's how the Flexi-Loan works:

• Borrow £1,000 to £1m, on terms up to five years.
• Draw what you need. You don't have to take your full approved amount, and interest is charged only on the outstanding balance.
• Repay early with no fee. If cash comes in sooner, pay us back and the interest stops.
• Top up when you need more. You can ask for more while you still owe us, subject to approval. If you drew a small part of your approved amount, you may be able to top up straight away.
• A director's personal guarantee. Every new Flexi-Loan needs one from at least one director. We don't take property as security when you borrow.
• A quick answer. You'll get a decision within 24 hours, but it might be longer depending on the complexity of the request.

Victoria Simpson's care business, VCare Group, pays around 200 staff every month while local authorities take 30 to 60 days to pay. She uses a Flexi-Loan to cover payroll in the gaps and repays as the money comes in. In VCare24's story she says: "It might be just a two or three day gap. But when you've got payroll running at that level, two or three days matters."

The Flexi-Loan isn't the right fit for everyone. If you'd rather no director gave a guarantee, or you need a large facility secured against property at a lower rate, a bank's secured line of credit may suit you better. Flexi-Loans are for UK limited companies.

We've funded more than 100,000 UK businesses, with over £5bn of funding since we started.

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What does an unsecured line of credit cost?

You pay interest on what you've drawn, often plus fees. Unsecured lines usually cost more than secured ones, because the lender has no asset to fall back on.

Lenders price each line differently, based on your company's credit history, how much you borrow and for how long, and their own appetite for risk. Some quote a monthly rate and others an annual percentage rate (APR), so compare like with like. Fees to look for:

• Interest: charged on the amount you've drawn, not your full limit.
• Arrangement fee: a one-off fee to set the line up, sometimes added to the balance.
• Drawdown fee: a charge each time you move money into your account.
• Non-use or commitment fee: a charge on the part of the limit you haven't used.
• Renewal fee: some lenders charge again when they review the line each year.
• Early repayment charge: a fee for clearing the balance early. Many lenders don't charge one.
• Late payment fees: charged if you miss a repayment.

With a Flexi-Loan, interest is charged only on what you owe and there's no fee for repaying early.

Before you draw, use this business loan calculator to work out the total cost of borrowing over the time you expect to need the money.

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Who can get an unsecured business line of credit?

Lenders look at your company's and directors' credit history, how money moves through your business account and, for larger amounts, your company accounts. Without an asset to secure the debt, these are what tell the lender you can repay.

Most lenders also want a UK-registered limited company, a business bank account and at least one director willing to give a personal guarantee. Each lender sets its own minimum trading history and turnover, so check before you apply.

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What iwoca looks at

We check your company's credit file and the personal credit file of the director who guarantees the loan, and confirm the directors match Companies House. Depending on how much you want to borrow, we may also ask for:

• Recent business bank statements, or a link to your business account through Open Banking.
• Your filed company accounts, for larger amounts.

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Can a start-up or a company with poor credit get one?

It's harder, but not always ruled out. Newer companies have less history for a lender to judge, so limits tend to be lower and a personal guarantee is more likely.

If your company is new, some lenders will consider it, often for smaller amounts. Our guide to lines of credit for start-ups covers the options.

Poor credit, missed payments or a county court judgment (CCJ) will count against an application, and be wary of "no credit check" offers: responsible lenders check your credit before they lend. If you've been declined, find out why and fix what you can before trying again.

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What can you use an unsecured line of credit for?

It suits short, repeating gaps: paying staff or suppliers before customers pay, buying stock ahead of a busy season, or covering an unexpected bill. It's less suited to long-term investments.

Cash flow is the most common pressure. In a 2023 Xero survey of 1,007 UK small businesses, 72% said they'd had cash flow problems in the previous 12 months, and 24% said they'd been unable to pay company bills and overheads (Xero Money Matters report).

Common uses include:

• Covering working capital gaps, such as payroll or supplier bills before invoices are paid. For more on this, see our guide to working capital lines of credit.
• Buying stock ahead of a peak season, or in bulk at a better price.
• Materials for the next job while a construction client's payment is still on its way.
• Unexpected costs, like a broken van or an equipment repair.

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Unsecured line of credit vs other business finance

A line of credit fits borrowing that comes and goes. For a one-off purchase, a term loan is often simpler, and for money tied up in unpaid invoices, invoice finance may fit better.

• Term loan: you get a lump sum up front and repay it in fixed instalments. It's easier to budget for, but you pay interest on the full amount from day one.
• Business overdraft: tied to your bank account and handy for small, short dips. A business overdraft can be repayable on demand, and limits are often lower.
• Business credit card: good for everyday spending you can clear each month. Rates are often higher if you carry a balance.
• Invoice finance: a lender advances money against your unpaid invoices, typically 80% to 90% of the invoice value (British Business Bank). Invoice finance suits companies with long payment terms and creditworthy customers.
• Merchant cash advance: you get a lump sum and repay it as a share of your future card sales. A merchant cash advance charges a fixed fee rather than interest.
• Secured line of credit: works the same way as an unsecured line but is backed by an asset, so limits can be higher and rates lower.

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Pros and cons of an unsecured line of credit

It's flexible and doesn't tie up your assets, but it usually costs more than secured borrowing, and a director's guarantee often puts personal assets at risk.

Pros:

• You don't need property or equipment to borrow against.
• You pay interest only on what you draw.
• You can borrow when a cost comes up instead of taking a lump sum you may not need.
• Applications with online lenders are often quick.

Cons:

• Rates are usually higher than for secured borrowing.
• Most lenders need a director's personal guarantee.
• Variable rates can rise, and lenders can cut your limit at review.
• Easy access makes it easy to borrow more than your cash flow can repay.

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How to apply and compare offers

Work out how much you need and for how long, check your company's credit score, then compare offers on total cost, fees, flexibility and the guarantee each lender asks for.

1. Work out the gap. Look at your cash flow forecast: how much do you need, when and for how long?
2. Check your credit score. iwoca Credit Compass shows your company's credit score for free, so you know where you stand before you apply.
3. Get your documents ready. Recent bank statements, your latest accounts and the details of every director.
4. Compare offers. Look at the total cost, every fee, how you can draw and repay, and exactly what the personal guarantee covers.
5. Read the agreement. Check how the rate can change, when the limit is reviewed and what happens if you miss a payment.

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Unsecured line of credit FAQs

Can I get an unsecured line of credit without a personal guarantee?

Sometimes, but it's uncommon. Lenders that don't ask for a guarantee usually lend to larger, established companies, or take a debenture over the company's assets instead. Every new iwoca Flexi-Loan needs a personal guarantee from at least one director.

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How quickly can I get a line of credit?

It depends on the lender. Online lenders often decide within a day or two, while banks can take longer. With iwoca, you'll get a decision within 24 hours, but it might be longer depending on the complexity of the request.

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How much can my company borrow?

Lenders base your limit on your turnover, credit history and how much you can afford to repay, and unsecured limits are usually lower than secured ones. You can borrow £1,000 to £1m with a Flexi-Loan.

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Does applying affect my credit score?

Checking your eligibility with iwoca won't affect your credit score. Other lenders may run a hard search when you apply, so ask first.

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Can I increase my limit later?

Many lenders review your limit if you repay on time and your business grows. With a Flexi-Loan, you can ask for a top-up while you still have a balance, subject to approval.