Published and reviewed 10 October 2026. General information, not advice. Figures are illustrations, not lender quotes.
The short version
- A secured loan gives the lender a legal claim over property or other assets. An unsecured loan has no specific asset behind it, but most small business lenders still ask directors for a personal guarantee.
- Security usually buys a larger loan, a longer term and a lower rate. In our illustration, borrowing £150,000 over five years cost about £19,900 less secured than unsecured.
- Unsecured borrowing is usually quicker and simpler, because there is no valuation or legal work on an asset. That speed is often what you are paying for.
- “Unsecured” does not mean “no personal risk”. If the company cannot pay, a personal guarantee lets the lender pursue the director, and that can still reach a family home.
- Start with the job the money will do. Equipment, premises and unpaid invoices each have finance built around them that may beat a general loan of either kind.
The difference at a glance
Every business loan is a promise to repay. The difference between secured and unsecured lending is what the lender can fall back on if that promise is broken.
With a secured business loan, the company gives the lender a legal charge over an asset, most often commercial property, sometimes equipment, vehicles or all of the company’s assets. If the loan is not repaid, the lender can enforce that charge and sell the asset to recover what it is owed. With an unsecured business loan, there is no charge over a specific asset. The lender relies on the business’s cash flow and credit record, and in most small business lending, on personal guarantees from the directors.
| Feature | Secured business loan | Unsecured business loan |
|---|---|---|
| What backs the loan | A legal charge over property or other assets, often with a personal guarantee as well | The business’s cash flow and credit, usually with a personal guarantee from the directors |
| Typical size | Larger. Often tens of thousands to several million pounds, limited by the value of the security and affordability | Smaller. Often a few thousand pounds to the low hundreds of thousands, limited by turnover and profit |
| Typical term | Often 1 to 15 years, and up to 25 years against property | Often 1 to 5 years, occasionally longer |
| Price | Usually a lower rate, but valuation, legal and arrangement fees add to the cost | Usually a higher rate, with fewer third-party costs |
| Speed | Weeks, because the asset must be valued and the charge put in place | Days to a couple of weeks for straightforward applications |
| What is at risk | The charged asset, plus personal assets if you have given a guarantee | The business, plus personal assets if you have given a guarantee |
| Often suits | Larger, longer-term plans by businesses that own suitable assets | Smaller or urgent needs, and businesses without property to offer |
These are typical market ranges, not limits. Each lender sets its own criteria, and a strong trading record can move an application up or down either column.
How a secured business loan works
The lender takes a legal charge over the asset when the loan completes. For a limited company, the charge is usually registered at Companies House, and the GOV.UK guidance sets a 21-day deadline for doing so. A charge over land is also registered at the Land Registry. Once registered, anyone checking the company’s record can see it, which matters if you later want to borrow elsewhere.
What can be used as security
- Commercial property the company owns, such as an office, unit, shop or warehouse. This is the most common security for larger loans. Lenders typically lend up to about 60% to 75% of its value, after taking any existing mortgage into account.
- A debenture. This is a document giving the lender a charge over the company’s assets as a whole. It normally combines fixed charges over specific assets, such as property and machinery, with a floating charge over assets that change day to day, such as stock and cash. The company can keep trading and using those assets until something goes wrong.
- Specific business assets, such as equipment or vehicles. Where the finance buys the asset itself, this is usually asset finance, and the asset secures the agreement.
- Cash or investments held with the lender, sometimes used to support a guarantee or overdraft.
- Residential property, such as a director’s home. Some lenders accept it, but it puts the home directly at risk. Our upcoming introduction service is limited to UK limited companies and excludes residential-property security.
First and second charges
If the property already has a mortgage, the existing lender holds the first charge and is repaid first from any sale. A new lender may agree to a second charge, ranking behind it. Second-charge lenders usually look at the combined borrowing and often allow a lower overall loan to value, and the first lender’s consent may be needed.
Worked example: how much equity can you borrow against?
A limited company owns its £500,000 freehold workshop and still owes £200,000 on its commercial mortgage. These are assumptions for the illustration, not a lender’s criteria.
- If a lender allows combined borrowing of up to 70%: 70% of £500,000 is £350,000. Take away the £200,000 already owed and the most it would lend is about £150,000.
- If a second-charge lender caps combined borrowing at 65%: £325,000 less £200,000 leaves about £125,000.
- Either way, the business must still show it can afford the repayments on both loans. Equity on its own does not make a loan affordable.
Security can change the amount, the rate and the term a lender offers, but it does not replace the affordability check. Our secured business loans page has a calculator that shows your borrowing as a share of the security value, and our guide to business loans secured against property compares further advances, second charges and capital-raising remortgages in pounds.
How an unsecured business loan works
An unsecured business loan is a lump sum repaid in fixed instalments, usually monthly, over a set term. Because no asset sits behind it, the lender’s decision rests on evidence that the business can pay: turnover, profit, how money moves through the bank account, existing debts and the credit records of the company and its directors.
Three things are worth knowing before you apply.
- Personal guarantees are the norm. Most lenders to small and medium-sized companies ask the directors, and sometimes major shareholders, to guarantee the loan. Lenders that do not usually lend smaller sums or charge more for it.
- “Unsecured” describes the asset, not the paperwork. Some lenders who market a loan as unsecured still take a debenture over the company’s assets, or reserve the right to. Read the facility letter and ask directly whether any charge will be registered.
- The size is tied to the business. Lenders commonly cap unsecured borrowing at a share of annual turnover and test it against the monthly cash flow shown in your bank statements. A company with £300,000 of turnover is rarely offered £150,000 unsecured, however strong its plans.
Some products sit close to unsecured loans but work differently. A revenue-based loan or merchant cash advance is repaid as a share of card takings or sales, so the cost and the term change with how busy you are. Compare these on the total amount repaid in pounds, not on a factor rate. Our unsecured business loans page covers the basics and has its own calculator, and our guide to unsecured business loans explained covers rates, borrowing limits and requirements in depth.
Which costs more? A worked comparison
Security reduces the lender’s potential loss, so secured lending is usually priced lower. But the rate is only part of the cost. Secured loans carry valuation and legal fees, and the lower monthly payment often comes from a longer term rather than a cheaper deal.
Worked example: £150,000 over five years
A limited company wants £150,000 for an expansion. The assumptions are illustrations for comparison, not quotes: a 7.5% rate for a loan secured on the company’s freehold, and 12% for an unsecured loan with a personal guarantee. Both are repaid monthly at a fixed rate. Bank Rate was 3.75% when this guide was written.
| Item | Secured at 7.5% | Unsecured at 12% |
|---|---|---|
| Monthly repayment | £3,006 | £3,337 |
| Total interest over 5 years | £30,342 | £50,200 |
| Fees | £3,000 (1% arrangement fee plus an assumed £1,500 for valuation and legal work) | £3,000 (2% arrangement fee) |
| Total cost of borrowing | £33,342 | £53,200 |
| Typical time to funds | A few weeks | A few days |
On these assumptions, security saves about £19,900 over the five years, or about £331 a month.
Now stretch the secured loan to seven years to bring the monthly payment down. It falls to about £2,301, but total interest rises to about £43,262. With the same £3,000 of fees, the total cost becomes about £46,262, and most of the saving has gone. A longer term is not wrong, but it is a different decision, so compare offers on the same term first.
Three practical points follow from the example.
- The gap narrows on small loans. Valuation and legal fees are partly fixed, so on £20,000 they can wipe out the benefit of a lower rate.
- Some secured costs are due even if the loan does not complete. A valuation is usually paid upfront and is not refunded if the lender declines.
- Time has a price too. If the money is for a contract or stock deal that will not wait, a quicker unsecured loan may be worth its higher cost.
Try your own figures in the business loan calculator, and see our guide to comparing business loans for the questions to ask about fees and rate types.
What happens if the business cannot repay
This is where the two kinds of loan feel most different, so it is worth understanding before you sign rather than after.
With a secured loan
After missed payments and formal demands, the lender can enforce its security. Depending on the charge, that can mean appointing a receiver to sell a property, or, for a lender holding a qualifying floating charge, appointing an administrator to take control of the company. The asset is sold and the proceeds go towards the debt. If the sale does not cover everything owed, the shortfall remains a debt, and the lender can call on any personal guarantee for it.
With an unsecured loan
The lender has no asset to sell, so it pursues the debt. It can take court action and obtain a County Court Judgment against the company, serve a statutory demand, or, for a debt of £750 or more, petition the court to wind the company up. In practice, with a personal guarantee in place, the lender will usually turn to the guarantors. A judgment against a director can lead to a charging order over their home. That is how a loan with no security over property can still put a house at risk.
If the company becomes insolvent
Security decides who is repaid first. In a liquidation, money from the assets is broadly paid out in this order, as R3, the insolvency trade body, sets out.
| Order | Who | In practice |
|---|---|---|
| 1 | Fixed-charge holders | Repaid from the sale of the specific assets they hold a charge over. |
| 2 | Costs of the insolvency | The insolvency practitioner’s fees and expenses. |
| 3 | Preferential creditors | Employees for certain wages and holiday pay, then HMRC for some taxes the company collected, such as VAT and PAYE. |
| 4 | Floating-charge holders | Repaid from remaining assets, after a share called the prescribed part is set aside for unsecured creditors. |
| 5 | Unsecured creditors | Unsecured lenders, suppliers and others share what is left, which is often very little. |
| 6 | Shareholders | Receive anything remaining, which is rare. |
This is why unsecured lenders rely so heavily on personal guarantees. If you are worried about repayments, speak to the lender early, and get independent advice from a licensed insolvency practitioner or a free business debt service before the position hardens.
Personal guarantees: the risk both routes share
A personal guarantee is a promise by an individual, usually a director, to pay the company’s debt if the company does not. It applies to secured and unsecured loans alike, and it is often the single biggest personal risk in the deal.
Before you sign, ask:
- Is it capped? A limited guarantee might cover 25% or 50% of the loan. An unlimited one covers everything, including interest and the lender’s costs.
- Is it “all monies”? Some guarantees cover every debt the company owes that lender, now and in future, not just this loan.
- Is it joint and several? If several directors sign, the lender may be able to pursue any one of them for the whole amount.
- Is it secured? A guarantee can itself be backed by a charge over the guarantor’s property. That is a different and bigger commitment.
- How does it end? Leaving the company or selling your shares does not automatically release you. Ask how a release is obtained, in writing.
Loans under the government-backed Growth Guarantee Scheme work a little differently. The government guarantee of 70% protects the lender, not the business, and the company stays liable for the whole debt. Lenders can still ask for personal guarantees, but the scheme rules do not allow them to take a director’s main home as security. The scheme supports facilities of up to £2 million per business group in Great Britain, and some changes announced in July 2026 are being phased in by accredited lenders, so check the current terms with the lender. Our guide to the Growth Guarantee Scheme explains eligibility, limits, costs and how to apply.
Our guide to personal guarantees goes further. Consider independent legal advice on the actual document.
What lenders look at for each
Both kinds of lender want to know the business can repay. A secured lender then adds questions about the asset.
| What is checked | Secured loan | Unsecured loan |
|---|---|---|
| Trading history | Usually at least two years of accounts, though strong security can help a younger business | Often a minimum of 6 to 24 months, depending on the lender |
| Affordability | Earnings, or rent for an investment property, must cover the repayments with room to spare | Monthly cash flow in bank statements, turnover and profit |
| Credit records | The company and its directors | The company and its directors, often weighted more heavily |
| The asset | A professional valuation, the title, any existing charges and how easy the asset would be to sell | Not applicable |
| Existing debt | All borrowing, including any charges on the property | All borrowing, including other recent short-term loans |
| Documents | Accounts, management figures, bank statements, property or asset details, a short plan for the money | Bank statements, accounts or management figures, details of existing debts |
Bring a one-page summary of what the money is for, how it will be repaid and what happens in a slower month. It answers the lender’s first questions before they are asked. Our borrowing checklist covers the rest of the preparation.
Which should you choose?
There is no universally better option. Start with three questions: what is the money for, how much do you need, and how quickly do you need it?
A secured loan may suit you if
- You need a larger sum, or want to spread the cost over more years than an unsecured lender will allow.
- The company owns property or other assets with enough equity, and you are comfortable putting them on the line.
- You have time for a valuation and legal work, typically a few weeks.
- The lower rate saves enough to cover the extra fees on the amount you need.
An unsecured loan may suit you if
- The amount is modest compared with your turnover, and the term is short.
- The company does not own suitable assets, or you do not want to tie them up.
- Speed matters more than the lowest possible cost.
- You understand, and accept, the personal guarantee you will probably be asked for.
Or a product built for the job
| If the money is for | Consider | Why |
|---|---|---|
| Equipment, machinery or vehicles | Asset finance | The asset itself secures the agreement, so no other property is needed and terms can match its working life. |
| Buying or refinancing premises | A commercial mortgage | Long terms built around property. See our guide on how to get a commercial mortgage. |
| Cash tied up in unpaid invoices | Invoice finance | Advances against what customers already owe, so the funding grows with your sales. |
| Stock, a project or a busy season | A small business loan | A set sum over a set term, secured or unsecured, sized to the job. |
Not sure where to start? The funding route finder asks two quick questions and points you to the route most people look at first, with no personal details and no credit search.
Protections and regulation
Most lending to limited companies is not regulated by the Financial Conduct Authority in the way consumer credit is, so many consumer protections do not apply. Lending to sole traders and smaller partnerships can be regulated, depending on the amount. Some smaller businesses can take complaints about financial firms to the Financial Ombudsman Service.
Whatever the route, check who you are dealing with on the FCA Register, ask how any broker is paid, and get every fee, the rate type and the total amount repayable in writing before you agree to anything.
Where Business Loan Advice fits
We are not a lender and we do not give personal advice. We are preparing a service that will introduce UK limited companies directly to lenders. No lenders are confirmed yet, so we cannot currently obtain quotes or make introductions. You will not pay us a fee. If a lender pays us commission after the service launches, we will tell you before asking your permission to refer you.
In the meantime, our calculators and guides are free to use with no sign-up. If your limited company is weighing up secured or unsecured borrowing, you can register its interest and we will contact you about the service launch. Read how we are paid for the details.
Common questions
What is the difference between a secured and an unsecured business loan?
A secured business loan gives the lender a legal charge over an asset, such as commercial property, which it can sell if the loan is not repaid. An unsecured business loan has no charge over a specific asset, so the lender relies on the business’s cash flow and credit and, usually, on personal guarantees from the directors.
Are business loans secured or unsecured?
Both kinds are common. Larger loans and longer terms are usually secured, often on property. Smaller and shorter loans to trading businesses are often unsecured but come with a personal guarantee. The facility letter will say which applies and whether any charge will be registered.
Which is cheaper, a secured or an unsecured business loan?
A secured loan usually has a lower interest rate, but it also carries valuation, legal and arrangement fees. In our illustration of £150,000 over five years, the secured loan cost about £19,900 less. On a small loan, the fixed fees can cancel out the lower rate, so compare the total cost over the same term.
How much can I borrow with an unsecured business loan?
It depends on turnover, profit and cash flow rather than assets. Many lenders offer from a few thousand pounds up to the low hundreds of thousands, and the largest sums go to established businesses with strong accounts. Lenders often limit the loan to a share of annual turnover.
Can I get an unsecured business loan without a personal guarantee?
Some lenders offer this, but it is less common, and such loans tend to be smaller or more expensive. Most lenders to small and medium-sized companies ask directors for a personal guarantee, even when no asset is charged.
Can an unsecured business loan put my home at risk?
It can, if you have signed a personal guarantee. If the company cannot pay, the lender can pursue you under the guarantee, and a court judgment against you can lead to a charging order over property you own. Check whether the guarantee is capped before you sign.
Can I get a secured business loan on a property that already has a mortgage?
Often, yes, through a second charge that ranks behind the existing mortgage. Lenders look at the combined borrowing against the property value, may allow a lower overall loan to value and may need the first lender’s consent.
What is a debenture?
A debenture is a document that gives a lender a charge over a company’s assets, usually combining fixed charges over specific assets with a floating charge over assets that change, such as stock and cash. It is registered at Companies House. Some loans described as unsecured still include one.
Which is quicker to arrange?
Unsecured loans are usually quicker, often days for a straightforward application, because there is no asset to value. Secured loans usually take a few weeks for the valuation and legal work, and property loans can take longer.
British Business Bank: Growth Guarantee Scheme
GOV.UK: Register a charge (mortgage) for a limited company
GOV.UK: Wind up a company that owes you money
R3: Creditor order of priority
Bank of England: Bank Rate maintained at 3.75%, September 2026
FCA Register: check a firm is authorised
Rates, tax bands and lender criteria change. Confirm the current details with the lender, your solicitor or your accountant before relying on them.