EXPLAINED: Is a Small Business Loan Secured or Unsecured?

Jun 2, 2022

George Holmes

George Holmes

Managing Director + Co-Founder

There are so many loans available that can help small business owners make cash injections into their company, even if they haven’t been trading for long. At Aurora Capital, we can help companies not only access these loans, but understand how to make the entire process a lot smoother and understand any risks involved. In this particular guide, we’ll be discussing a commonly asked question about small business loans: is a small business loan secured or unsecured? 

We will also discuss key elements of each, and what makes them different.

Is a Small Business Loan Secured or Unsecured?

A small business loan can be both a secured loan and an unsecured loan, depending on the amount you need to raise, how you will use the funds and if you have any available collateral.

So, how do you know whether you’re better off with secured loans or unsecured business loans? Let’s take a look at each in more detail.

What are unsecured business loans?

An unsecured business loan is available to all companies trading for at least 6 months, and depending on the lender, companies can borrow between £1k – £500k. Unlike a secured loan, unsecured loans do not require security on a property and are therefore ideal for SMEs with little in the way of assets.

Unsecured business loans can be used for virtually any business purpose, from business growth and stock purchase to settling bills and refinancing existing debt. However, it’s important to note that they must be used within the business and cannot be taken out for personal use.

An unsecured loan is slightly riskier for the lender, and will therefore most likely require a personal guarantee from 1 or multiple directors. In most cases, an unsecured loan application will also include a check of your credit history. A business owner should be prepared to share and discuss their credit rating to some lenders – but don’t worry, even businesses with poor credit ratings can still get approved for unsecured small business loans. A secured loan may be a better option for you in this case, but you can always speak to our advisors if you’re unsure.

Before you submit a proposal for an unsecured loan, make sure you have the following:

  • Last 6 months’ bank statements 
  • Company accounts 
  • Personal details of the business director

Click here to compare unsecured loans and start the application process.

What are secured loans?

With secured loans, property has to be used as security – or as a way of ensuring the lender will receive the money back.Businesses looking for secured loans need to ensure they can use either the business’s own property or the business owner’s residential/B2L property as collateral.

Secured loans allow businesses to borrow up to £2M in funds, but this will ultimately depend on the lender, and the assets you can offer as security. Terms will often be up to 30 years, but some lenders offer interest only terms. Interest rates on average start from 4.95% per annum, depending on age of business, affordability and LTV.

But, surely secured business loans have fewer benefits if the business has to put up collateral? 

Well, not exactly.

A secured business loan significantly reduces risk for the lender – they know that even if you fail to make your loan repayments, they’re covered, as they can take back your physical asset to cover their finances. This means that a small business is far more likely to be approved for a secured loan over an unsecured loan. So, if you’re comfortable putting up your personal assets for an injection of cash flow, perhaps a secured small business loan is the route you should take.

Applying for a secured loan is quick and simple with Aurora Capital. Here is a checklist of things you’ll need before you start the process:

  • Full name of the business
  • Details of all guarantors
  • Permission to perform personal searches
  • Amount required
  • The term of the borrowing
  • The reason funds are required

Click here to compare secured business loans and start the application process.

Secured and unsecured loans from Aurora Capital

We hope we’ve been able to shed some light on the question: is a small business loan secured or unsecured? and that you feel primed and ready to start your application process! Whatever loan you choose, our experts can support you in providing any information you need.

At Aurora Capital, we have years of experience matching small, ambitious businesses like yours to their ideal loan partners. Whether you need secured or unsecured small business loans, or another type of business finance such as aMerchant Cash Advance or Asset Finance, we have you covered.

Contact our team today and discuss secured vs unsecured business loans. Find out which will be the most valuable for your business, and get your funds within days!

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