Unsecured business loans: how they work and who qualifies

An unsecured business loan typically takes from a few days to around two weeks from application to funds, depending on the lender and how quickly documents are supplied.

Because there is no valuation or legal charge, unsecured loans are generally quicker to arrange than secured borrowing. Decisions can come within a few working days once a lender has everything it needs, and funds can follow shortly after signing.

Applications slow down when filed accounts are old and management figures are needed, when bank statements show items the underwriter wants explained, or when several directors must each sign a personal guarantee and pass identity checks.

For a comparison across every type of finance, including how long each can be repaid over, see how long it takes to get a business loan.

Usually, yes. A personal guarantee is a legal promise by a director or owner to repay the debt if the business cannot. Lenders commonly ask directors and significant shareholders to give one on unsecured loans. Some guarantees are unsupported; others are backed by a charge over the guarantor's home. Read the terms carefully and consider independent legal advice. Personal guarantee insurance can cover part of your exposure.

Unsecured lending is available to limited companies, LLPs and, with some lenders, sole traders and partnerships. Each lender sets its own minimum trading period and turnover. They typically look at:

• How long you have been trading and your annual turnover
• Profitability and the cash left after existing commitments
• Recent business bank statements, including returned payments or unarranged overdraft use
• Credit history of the business and its directors
• Existing debts and overall affordability
• What the money is for

Can you get an unsecured loan with bad credit?

Sometimes. Some lenders focus more on current trading than on past problems, particularly if defaults or CCJs are older and settled. Pricing will be higher and bank statements will be scrutinised closely. See bad credit business loans for more.

Few unsecured lenders will consider a business with no trading history at all. For newer businesses, our page on unsecured start-up business loans explains the government-backed Start Up Loan and the alternatives.

The rate you are offered depends on your trading history, credit record, cash flow, the amount and the term. Compare offers on the total amount repayable, including arrangement fees and any early repayment charges, rather than the headline rate. Applying through a broker means your case goes only to lenders likely to consider it, which avoids unnecessary credit searches.

When offers arrive, put them side by side on total cost, not the headline rate; our guide to business loan comparison and interest rates shows a worked example.

The main alternatives to an unsecured business loan are a secured loan, asset finance, invoice finance and, for card-taking businesses, a merchant cash advance. If you need a larger amount, a longer term or lower pricing and can offer property or other assets, a secured business loan may suit you better. If speed and keeping assets unencumbered matter more, unsecured borrowing is usually the better fit.

If the money is for equipment or vehicles, asset finance is secured on the item and often costs less. If you invoice other businesses, invoice finance releases cash already owed to you, and a merchant cash advance suits businesses whose income comes mainly through card sales.