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If you’d like to see your business thrive but don’t want to restrict your day-to-day operations, an unsecured business loan could be for you.

If you haven't been impacted by COVID-19 check out our Flexi-Loan

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Unsecured business loans

Apply for an unsecured business loan with iwoca. With iwoca's Flexi-Loan, you can borrow up to £500,000 over 24 months and get a decision in just one working day.

What is an unsecured business loan?

There are two main variations of business loans: secured loans and unsecured loans. We explore the differences between both and discuss the key things you need to know about unsecured business loans so that you can decide which is best for your business.

An unsecured business loan is a short-term finance option for businesses that don’t want to guarantee something they own (collateral) to the lender if they can’t repay. So with an unsecured business loan, your assets are safe, as the lender cannot take ownership of them if you fail to pay back the loan.

Because these loans aren’t secured against any of your belongings, they’re riskier for the lender. This means they tend to carry higher interest rates, stricter conditions and are likely to be smaller amounts over shorter periods of time.

Unsecured business loans are often used:

  • for short-term financing
  • to cover unexpected expenses
  • as a cash advance before an invoice is settled.

What is the difference between secured and unsecured loans?

With secured business loans, you need to put down some form of collateral as security against non-payment. This is usually a business asset such as property, equipment, or any item that holds value.

If you’re unable to repay your loan then the lender can take possession of the asset you’ve put down as collateral, to settle the debt you owe to them. The benefit of taking out a secured loan is that you’ll likely get better payment terms with a lower interest rate.

An unsecured business loan is ideal for businesses that don’t want to put their assets at risk, or those that don’t have any assets to use as collateral. With larger interest rates and shorter terms, it’s more favourable for businesses that need a faster solution.

An unsecured Flexi-Loan from iwoca allows you to borrow from £1,000 to £500,000 over 24 months, with no fees for early repayment.

Unsecured loans vs secured loans for small businesses

The majority of small business loans are unsecured. This is because, as a small business, you may not have enough collateral to offer the lender as security against non-payment.

With that said, there are some secured small business loans available, so it’s important to shop around and compare your options. Be conscious of your cash flow, assets and liabilities, and the risk you’d be taking with a secured business loan should things not go as planned.

What are the advantages of an unsecured loan?

Free control over your assets

An unsecured business loan leaves you free to buy and sell assets with no restrictions. This means that you have greater flexibility in choosing how you develop and grow your business.

Fewer upfront fees

Taking out a secured business loan means that you’re likely to have to pay for valuation fees, so that the lender can work out how much your assets are worth. An unsecured business loan eliminates the need for this, meaning you can invest that money in your business instead.

Easier for new businesses

New businesses won’t always have assets that provide enough value for a lender, which could limit their ability to get a secured business loan. An unsecured business loan eliminates the need to do so and could be a more viable option for those that have been established more recently. Check out our article on start up funding options.

Types of unsecured business loans

There are a few different types of unsecured business loans, each suited to varying situations. Some examples include:

Fast unsecured business loans: short-term business loans that you can get quickly. They’re typically used to cover unexpected or emergency expenses like broken machinery.

Small unsecured business loans: if you don’t need to borrow much a small business loan may be all your business needs to get through a rough patch.

Large unsecured business loans: usually for businesses that are looking to expand and invest in growth. You may need a strong credit history and good cash flow to qualify for this type of unsecured loan.

Invoice financing: a way to get cash immediately for your unpaid invoices. The lender will give you a percentage of the invoice value upfront and then you can repay them once your customer has paid you. Invoice financing is ideal for businesses that are waiting on a payment from a customer. With iwocaPay, your customers can choose to pay upfront or spread their payments across 3 monthly instalments (subject to approval).

How to apply for an unsecured business loan?

If you're wondering how to get unsecured business loan funding, don't worry, the application process is usually simpler than that of a secured loan.

When you’re applying, you’ll need to give your personal and financial information, including your credit score, annual income and existing debts. The lender will use this information to determine whether you’re a good candidate for an unsecured business loan.

You’ll also need to give information on the amount of money you want to borrow and how much time you need it for. This is important because different lenders offer different repayment terms, interest rates and fees.

Once you’ve completed your application, the lender will assess it and decide whether or not they want to approve your request. If approved, they’ll contact you with details on how much money you can borrow and what the repayment terms are.

Eligibility criteria will vary from lender to lender, but in order to get an unsecured loan it’s likely you’ll need to have a good trading history. Unsecured loans are riskier for the lender, so they may be more hesitant to offer them to businesses with poor track records.

If you default on an unsecured business loan or make a late payment then this may impace your credit score. Additionally, taking out an unsecured loan could impact your ability to take out a concurrent loan in the future.

Unsecured loans are a safe way for your business to secure short-term funding without having to guarantee something that you own. Before taking out any type of loan, you should conduct background checks on the lender or the business loan broker.

Some banks will provide loans to start-up businesses, depending on the risk involved. There are several other funding options available if you don't qualify, such as an iwoca Flexi-Loan.

Loan repayments will depend entirely on the amount and type of loan. For example, our Flexi- Loan allows you to take out £1,000 to £500,000 over 24 months, with no early repayment.

There are lots of different reasons why you might want an unsecured loan. Debt management, investing in growth and repairing damaged equipment are just a few different reasons.

How our unsecured business loan works


1

Apply online: it only takes 10 minutes

Applying for our Flexi-Loan is quick and easy – just submit some basic information about your business to see if you’re eligible.

2

Get a decision in just one working day

We know that things move fast when you run your own business, which is why we aim to give you a decision in just one working day. If we approve your application, you should have the money in your account within 24 hours.

3

Repay over 24 months (or earlier)

You can borrow the money for up to 24 months, but if you’d like to save on interest you can always repay early without any fees. Just keep the money for as long as you need it.

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Dan is part of the content team at iwoca. He writes articles explaining financial topics, as well as guides on the best support for small businesses during coronavirus.

Article updated on: 15 June 2022

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