Unsecured loans for UK business owners

What is an unsecured loan?

An unsecured loan is a flexible approach to borrowing, that allows a business owner, sole trader, or limited company to get instant cash, without using valuable assets such as property, equipment or machinery. This is not just for businesses with few assets, unsecured business loans can also suit companies that would rather not put forward valuable assets as security.

Check out our handy business loan calculator to find out if you qualify for an unsecured loan.

How can I get an unsecured loan?

It’s straightforward for UK business owners to get an unsecured business loan. You can approach a high street bank, or lending marketplace like Funding Options, or speak to a financial broker. Bear in mind, that your business has to have been registered in the UK for a minimum of six months, with turnover of around £5,000 per month and, to speed up the process you should have the following documents to hand.

• Recent business current account statement

• 6-month annual returns (profit and loss accounts)

• Accounts filed with HMRC

• 6-month trading history

• Personal guarantee from a director

What is the maximum I can borrow with an unsecured business loan?

This really depends from lender to lender, yet by shopping around via a lending market you can find an option that suits your needs. The amount on offer will be dependent on annual revenue, credit score, and the financial situation of your business, yet, almost all unsecured business loans fall in the range of between £5,000 and £500,000. It would be rare for a lender to offer more than £500,000 unless the business owner has a long and demonstrable history of business successes.

Types of unsecured business loans

Aside from traditional business loans, you also have the option of merchant cash advances, revolving credit facilities, overdrafts and credit cards. If you have lots of outstanding customer invoices, you might also consider invoice finance, which uses your accounts receivable as security, however, as customer invoices are put forward, this is technically not an unsecured loan, so will not be covered in this article.

Merchant cash advance

A merchant cash advance is an unsecured loan, that is repaid as a percentage of card sales, including a fee. Many small business owners use merchant cash advances to manage cash flow, in businesses where customers regularly pay by credit and debit cards. As the lender has visibility into the cash flow of your business, you can bypass the need for extensive credit checks or security. The business only repays what it can afford, as a fixed percentage of monthly sales. If sales dip, the amount taken by the lender is also reduced, so you can get a better handle on your business finance requirements.

How much can you get?

Business owners who operate in a card-dominated retail space can borrow from between £10,000 to £350,000, with more on offer from specialist lenders. It makes sense to quickly scan the market with the help of a lending marketplace to get the best deals.

Most suitable for?

Businesses in the UK that have been trading for a minimum of six months, and have on average £10,000 per month in debit and/or credit card sales.

What can you use it for?

An advance that can be used for several purposes including:

• Repairs

• Stock

• Working capital

• New machines

• Technology upgrades

• IT investment

Revolving credit facility

A revolving credit facility is a type of unsecured lending that gives business owners a chance to withdraw money, use it for working capital etc, repay it, and then withdraw more, as and when they need it. Hence, a revolving credit facility is a flexible approach to borrowing, and there is no need for security. 

How much can you get?

As with a merchant cash advance, the amount on offer will depend on the size of your business and credit history, but the range is between £1k and £20m. 

Most suitable for?

A revolving type of credit is especially useful for any business that experiences sharp fluctuations in cash flows and, that often incurs large, unexpected expenses. In essence, it is used by companies that have, at times, low or negative cash balances to support their working capital needs. For this reason, it is considered a form of short-term financing that is usually paid off quickly.

What can you use it for?

It is predominantly used as a type of working capital finance, however, you can use it for many different business expenses, including the following:

• Developing new products and services

• Staff recruitment and training

• Cash flow management 

• Purchasing stock or equipment

• Paying emergency or unexpected bills, such as repairs, renovations

• Supplementing traditional business loans

Business overdraft

A business overdraft is additional credit on your business bank for short-term funding. An overdraft charges interest only on the overdrawn amount, unlike a business loan that carries fixed repayments and interest. You can repay your business overdraft when your cash flow is once again positive. You can negotiate an increase in your overdraft limit to reflect your current business requirements, pending approval from your lender.

How much can you get?

As with all forms of lending, the amount of overdraft on offer will vary from lender to lender, and will reflect the financial situation of your business. That said, the average business overdraft ranges from £500 to £50k. If you feel like your overdraft is too much, and you are struggling to repay it on a monthly basis, you can simply reduce it in line with your current spending needs.

Most suitable for?

Business overdrafts are probably the most common type of unsecured funding on the market, but usually, they are only used for short-term expenditures and small amounts. Small to medium-sized businesses might find it convenient to have a line of credit available on their business current account, without the need to apply for small business loans to cover unexpected expenses.

What can you use it for?

There are many occasions when a business overdraft will come in handy for your business, including the following:

• Cash flow issues

• Unexpected bills

• One-off or unexpected spending

Business credit cards

Business credit cards are a flexible form of business funding for day-to-day expenses. If you are using business credit cards for purchases that you can afford to pay off in one to three months, they are a flexible line of credit. However, if you are accumulating debt that requires you to carry balances for longer than three months, you should think about an alternative type of business funding.

How much can you get?

With an average financial position, your business can expect to secure a credit card with a limit of between £1,000 and £10,000. 

Most suitable for?

Businesses with lots of miscellaneous day-to-day expenses and strong monthly cash flow. Business credit cards, ideally, need to be repaid at the end of every month, otherwise, heavy interest charges will accumulate, as such, they are only recommended for businesses that have a regular monthly income.

What can you use it for?

• Day-to expenses

• Employee entertainment

• Unexpected costs

• Emergency expenses