®
One of the first decisions in business borrowing is whether the loan is secured or unsecured. The distinction is simple to state — a secured loan is backed by an asset the lender can claim if you default, an unsecured loan is not — but the consequences run through everything: the interest rate, how quickly you can access funds, how much you can borrow, and what is at risk if things go wrong. This guide explains both, so you can judge which structure fits your situation.
What a secured business loan is
A secured loan is backed by collateral — a specific asset the lender takes a legal charge over. If the business fails to repay, the lender has the right to recover the debt by taking and selling that asset. Common forms of security include commercial property, equipment and machinery, vehicles, or a general charge over the assets of the business (a debenture).
Because the lender's risk is reduced by the collateral, secured loans typically offer lower interest rates, larger amounts, and longer terms. The trade-off is that the asset is genuinely at risk, and arranging security takes time — the asset must be valued and the legal charge registered, which lengthens the process.
What an unsecured business loan is
An unsecured loan is not backed by a specific asset. The lender advances funds based on the creditworthiness and cash flow of the business rather than on collateral. If the business defaults, the lender cannot automatically seize a named asset — they must pursue the debt through the normal legal channels available to any creditor.
Because there is no collateral to fall back on, the lender carries more risk, which is reflected in the pricing and the amounts available. Unsecured facilities tend to be smaller and priced to reflect the higher risk, but they are far quicker to arrange — there is no asset to value and no charge to register. For many small businesses needing funds quickly for a short-term purpose, that speed is decisive.
The key differences at a glance
- Collateral. Secured requires a named asset; unsecured does not.
- Speed. Unsecured is usually much faster — no valuation, no charge registration. Secured takes longer because the security must be arranged.
- Amount. Secured facilities can be larger, because the collateral supports the lending. Unsecured amounts are typically more modest.
- Rate. Secured loans generally carry lower rates because the lender's risk is lower. Unsecured rates are higher to reflect the additional risk.
- What is at risk. With a secured loan, the pledged asset can be lost on default. With an unsecured loan, no specific asset is automatically forfeit — though default still has serious consequences for the business.
A note on personal guarantees
People sometimes assume "unsecured" means no personal risk. That is not always true. Many unsecured business loans require a personal guarantee — a promise by a director to repay personally if the company cannot. A personal guarantee is not the same as security over an asset, but it does put the director's personal finances on the line. When comparing unsecured offers, always check whether a personal guarantee is required. Some lenders, including Credicorp, lend to the company as the sole obligor with no personal guarantee — the company alone is responsible, and there is no personal credit search or personal liability for any director.
When a secured loan makes sense
A secured loan is usually the better fit when you need a large amount, when you can accept a longer arrangement time, and when you have a suitable asset to pledge. Buying commercial premises, funding a major equipment purchase, or financing significant expansion are classic secured-loan scenarios — the amounts are large, the timeline allows for the security process, and the asset being financed often serves as the collateral itself.
When an unsecured loan makes sense
An unsecured loan is usually the better fit when you need funds quickly, when the amount is modest relative to your turnover, and when you either lack a suitable asset to pledge or would rather not put one at risk. Bridging a short-term cash flow gap, covering a VAT quarter, funding a stock purchase ahead of a busy season, or seizing a time-limited opportunity are typical unsecured scenarios — speed matters more than securing the lowest possible rate, and the amount is well within what cash flow can service.
Which should you choose?
Start from the need, not the product. If the requirement is large, long-term and asset-related, a secured loan will usually cost less and suit the timeline. If the requirement is modest, urgent and short-term, an unsecured loan gets you there faster and keeps your assets unencumbered. Weigh the lower rate of secured borrowing against the speed and simplicity of unsecured — and always factor in whether a personal guarantee is attached. Our eligibility check takes two minutes and shows what your company is likely to qualify for.
Frequently asked questions
- Is an unsecured business loan always more expensive than a secured one?
- Generally yes, all else being equal, because the lender takes on more risk without collateral and prices for it. However, the total cost depends on the amount and term, not just the headline rate. A small, short-term unsecured facility repaid quickly can cost less in absolute pounds than a large, long secured loan — even at a higher rate — simply because you borrow less for less time. Always compare the total repayable, not only the rate.
- Can I get an unsecured loan with no personal guarantee?
- Some lenders offer this and some do not — it varies by lender and by facility size. An unsecured loan with no personal guarantee means the company alone is responsible for repayment, with no personal liability falling on any director. Always confirm the personal guarantee position before you sign, as "unsecured" on its own does not guarantee the absence of a personal guarantee.
- What happens to my asset if I default on a secured loan?
- If you default on a secured loan, the lender has the right to enforce the charge over the pledged asset — which can ultimately mean taking and selling it to recover the debt. This is why secured borrowing should only be taken against an asset you are confident the business can support the repayments on. Lenders will normally engage with a struggling borrower before enforcing security, but the risk to the asset is real and should be weighed carefully.
- Which is faster to arrange?
- Unsecured loans are almost always faster. Because there is no asset to value and no legal charge to register, an unsecured facility can often be assessed and funded within a day for a well-prepared applicant. A secured loan requires the collateral to be valued and the charge to be legally registered, which typically adds days or weeks to the process. If speed is your priority, unsecured is usually the route.