How do Unsecured Business Loans work

How do Unsecured Business Loans work

An unsecured business loan provides very flexible capital for your business to expand, grow, pay bills, buy stock, hire people or do anything that does not have a specific asset in the background on which a charge can be taken (as would usually be required by a High Street bank). 

So, how do unsecured business loans work? The loan can be over any term up to 5 years but the longer-term loans are usually only available to stronger applicants (i.e. with a longer trading record and clean credit). 

To qualify for an unsecured business loan we look primarily at three things:

  1. Credit history: this is relevant both for the business but also for the Directors and/or business principals
  2. Trading record: A lender will want to see that the business has the means to repay the loan and usually we need about 12 months’ trading history. This means it is trickier for start-ups who don’t have this record to point to so the options are more limited here but if points 1 and 3 are string there are still options
  3. Value of the Personal Guarantee: All loans require that a Director(s) provide a personal guarantee. The strength of this is determines by the Director's personal credit history and the value of any assets they have (by "assets" we usually mean property). It is important to note that NO CHARGE is necessarily placed on any asset but a lender will draw a greater deal of comfort from a deal if they can see the Director offering the personal guarantee does have assets and a clean credit record. 

If all three of these things are in place then the loan is easily approved. If one or more is below the required standard then we will usually need one of the other areas to be strong enough to compensate. A loan should still be available but the rates may be a little higher. 

There are circa 40 different private unsecured business loan lenders we work with and we are familiar with their criteria and the deals they like to do. Please contact us if we can help you raise finance, or if you would like more information on how unsecured business loans work.