These days it can be very difficult to obtain a small business loan. This has been true for the last few years. From well before the volatility caused by Brexit – banks have become increasingly cautious about lending. They often require security for a loan, making an unsecured business loan hard to find. Secured and unsecured business loans are two very different product. It is important to be clear about those differences.
Secured
A secured business loan is a credit agreement that uses assets as security e.g. your property as security. It can appear to be an attractive option financially if you are a homeowner and need to borrow a substantial amount. The amount is usually from around £5000 to £125,000. The repayment terms tend to be over a several year period and interest rates are lower due to assets available as security. Therefore the loan repayments can be quite low. However, you need to be very clear that because the loan is secured on the asset that there is a potential risk. The risk is of you losing the asset in the event of missing repayments.
Unsecured
An unsecured business loan is available to everyone. You do not need to have assets to secure it. These loans can be available from banks and other lenders such as online companies. Unsecured business loans usually have fixed repayments over a period of between one and five years. Lenders will apply a higher interest rate for shorter term loans. If you are unable to make payments the lender will contact you to make arrangements for this to happen but because the loan is not secured on your assets, these are not under threat.
Conditions
However, it is because the lender has no security to underpin the loan that many lenders are reluctant to agree to an unsecured business loan. Those that are willing to consider them usually base their lending decisions on rigid algorithms of what constitutes a good risk. These algorithms do not take into account any extenuating circumstances or other factors, so you are likely to struggle to get an unsecured business loan from a mainstream lender if there are any issues with your credit score.
