Key takeaways
- An unsecured business loan doesn’t tie your loan to a specific asset. The lender looks at your trading record and finances instead.
- “Unsecured” usually means “not secured against a specific asset”. Most lenders, including Allica, ask for a personal guarantee from a company director or owner.
- Lenders check whether you can comfortably cover the repayments with a metric called debt service cover (DSC). DSC compares your income vs. your debts and checks you can afford the repayments from what’s leftover.
- Applying for a business loan with Allica takes 10 to 20 minutes, and you can get a decision in principle first (in about one minute) for an idea of the rate you’ll be offered.1
What does “unsecured” actually mean for a business loan?
A secured loan uses an asset as collateral – if you can’t repay the loan, the lender can take the asset and use it to get their money back.
An unsecured business loan isn’t backed by a specific asset, like a property or a piece of machinery. If you can’t repay, the lender has no named asset to claim. With no collateral to fall back on, they have to base their lending decision on your company’s financial performance and background. They’ll review how long you’ve been trading, what your accounts show, and how well you manage cash.
But unsecured loans still have some kind of safety net for the lender. Most business loans need a personal guarantee from a director or ultimate beneficial owner (UBO). The loan isn’t secured on your business assets, but you may be personally liable for the debt if your company can’t repay it.
If you’re weighing up how to pay for growth, our guide to business finance is a good place to start. You can also read about debt financing vs equity financing.
Unsecured vs secured business loans: what’s the practical difference?
| Unsecured | Secured | |
|---|---|---|
| What backs the loan | Your business’ track record, plus usually a personal guarantee | Specific assets, such as property or equipment |
| Typical amounts | Lower (e.g Allica’s maximum is £150,000) | Higher (e.g. Allica’s maximum commercial mortgage is £15 million) |
| Lender’s risk | Higher, so they assess you more closely | Lower, because they hold security |
| Examples | Business loans | Asset finance2, commercial mortgages3, bridging finance4 (all available from Allica Bank – see links) |
How does an unsecured business loan work?
With an Allica business loan, you can borrow between £25,001 and £150,000 and repay it over one to five years. Your interest rate is fixed, so your payment stays the same each month.
Repayments are fully amortising from day one. That means every payment covers both interest and part of the loan itself. You won’t have a big lump sum to pay off at the end, but you’ll need to be comfortable with the impact on your cashflow from the very first month.
We charge a 3% arrangement fee. You can add it to the loan, so you don’t have to pay it upfront. There are no early repayment charges, so you can clear the loan early without a penalty.
How repayments, interest rates and fees are structured
Look at the total cost of borrowing, not just the headline rate: interest, arrangement fee and term. A longer term lowers your monthly payment but costs more overall, as you’re paying interest for a longer time.
The exact fixed rate we give you will depend on your loan size and your business. A decision in principle shows you an indicative rate before you commit to the loan.
What do lenders assess when there is no collateral?
All lenders want to have a good level of confidence that their customers will repay their loans. Having a security on a loan offers an extra level of confidence, but with an unsecured business loan, the lender is mostly relying on your:
- Trading history
- Filed accounts
- Debt service cover
- Directors’ creditworthiness
- Business bank statements
In all of this, the lender is trying to understand one thing: whether you can comfortably pay back the debt. Our guide explaining how to improve cashflow might be helpful here, if you’re trying to work out the best way to manage the costs of borrowing.
How lenders use debt service cover to assess your loan eligibility
Debt service cover tells a lender how many times your profit covers your loan repayments. Here’s a simple example.
Say your business makes £150,000 in profit a year, before loan payments. You borrow £150,000 over two years at a fixed rate of 9.90%.
Your repayments, interest included, would be about £6,915 a month or £82,978 a year.
To work out your debt service cover, divide your yearly profit by your yearly repayments:
£150,000 ÷ £82,978 = 1.8
That’s a debt service cover just over 180%. Lenders often look for at least 150%, so this business would meet that standard.
This example is for illustration only. It isn’t an offer and the figures don’t include any arrangement fee.
What a personal guarantee means for directors taking out an unsecured business loan
A personal guarantee is an agreement that you’ll repay the loan personally if your business can’t. It’s legally binding and enforceable, so needs to be taken seriously.
The lender can pursue you for what’s owed if the business defaults and the loan stays unpaid. Read the terms carefully, and think about speaking to a legal or financial adviser before you sign any contract.
We want you to know the risks and rewards upfront. All Allica business loans need a personal guarantee from a director or ultimate beneficial owner.
How to apply for an unsecured business loan
Here’s how an application works at Allica:
- Decision in principle. Find out whether you’re likely to be approved and see your indicative rate.
- Full application. This takes 10 to 20 minutes and we pull in much of the information for you using tools like open banking.
- Underwriter review. Smaller loans may be decided automatically. Larger or more complex ones go to an underwriter for a closer look.
- Approval. We aim to give you a decision within one business day.
- Payout. You sign the paperwork and your money arrives in your account within days.
You’ll need a business bank account to receive the money, but it doesn’t have to be an Allica account. We should say, though, that our Business Rewards Account is a fine choice.
What documents will you need to provide for an unsecured loan?
What you need will vary depending on how much you want to borrow. The basic requirements are:
- Bank statements show how money moves through your business each month.
- Filed accounts show your profit, assets and debts over time.
- Management accounts give a more recent picture than your last filed accounts.
If your main business account isn’t with Allica, we’ll ask for open banking access so we can see your transactions securely. Get these documents before you start; it’ll make the process even smoother.
Is an unsecured business loan right for your business?
An Allica business loan could suit you if you:
- Have traded for at least three years and filed accounts to show it
- Are incorporated as a limited company or limited liability partnership (LLP)
- Have profits that can comfortably cover the repayments
- Borrowing for growth or a planned cost, not to cover a cash gap
If that sounds like you, you can check where you stand with a decision in principle – no commitment, no time wasted, and on the other side of answering just four questions in our online form.
Apply for an Allica business loan.
Frequently asked questions about unsecured business loans
Should I get an unsecured business loan?
It makes sense if you have a clear plan for the money, a steady track record and profit that comfortably covers the repayments. It’s not suitable if you’re borrowing because you’ve run out of cash. Talk to your accountant first if that’s your situation.
What should I look for in the best unsecured business loan for my business?
Don’t pick on rate alone. Compare the amount, the term, the total cost, the eligibility criteria and how quickly you’ll get a decision.
How do I apply for an unsecured business loan with Allica?
Start with a decision in principle, then complete a short application and sign the paperwork if you’re approved. It’s all online, designed to be done in about 20 minutes. Once you’re approved, your money arrives within days.
1 All lending is subject to status, our lending criteria, and a satisfactory credit assessment. Terms and conditions apply in England and Wales and Scotland.
2 Asset finance and growth finance services are provided by Allica Financial Services Limited trading as Allica Bank Asset Finance. Registered office: 4th/5th Floor, 15 Worship Street, London EC2A 2DT. Incorporated under the laws of England and Wales with company number 12784979. Allica Financial Services Limited is not authorised or regulated by the Prudential Regulation Authority or the Financial Conduct Authority. The asset finance and growth finance products offered by Allica Bank Asset Finance are not regulated products.
3 All lending is subject to status, our lending criteria, and a satisfactory credit assessment. Terms and conditions apply.
4 Bridging Finance services are provided by Allica Bridging Finance Limited. Registered office: 3rd Floor 12-18 Grosvenor Gardens, London, England, SW1W 0DH. Incorporated under the laws of England and Wales with company number 10859711. Allica Bridging Finance Limited is not authorised or regulated by the Prudential Regulation Authority or the Financial Conduct Authority. The bridging products offered by Allica Bridging Finance Limited are not regulated products.
Links were live and information was correct at the time of writing the article.
Disclaimer: This is information – not financial advice or recommendation.
The content and materials featured in this article are for information and education only, and are not intended to take into consideration any particular recipient’s financial situation. The product details referred to are correct at the time of writing. The information does not constitute financial advice or recommendation and should not be considered as such.
