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"Secured or unsecured?" sounds like a question about the lender's paperwork. It is really a question about what happens to your company — and sometimes your house — if things go wrong. This guide explains what security actually means on a UK business loan, the three forms it takes, what giving it costs you beyond the interest rate, and how to decide which side of the line a given borrowing need belongs on.
What "secured" actually means
A secured loan gives the lender a legal claim over something specific if the company defaults. In UK business lending that claim usually takes one of three forms. A fixed charge attaches to a named asset — a property, a vehicle, a machine — which the company cannot sell without the lender's consent, and which the lender can seize and sell on default. A floating charge (usually via a debenture) hovers over a shifting class of assets such as stock, debtors and cash; the company trades freely until default, at which point the charge crystallises over whatever is there. A debenture registered at Companies House commonly bundles both, giving the lender a claim over more or less everything the company owns.
The personal guarantee — security by another name
A personal guarantee (PG) is technically distinct from security over company assets, but it belongs in this conversation because it does the same job for the lender: if the company cannot pay, you pay, from your personal savings, and ultimately your personal assets. A "PG-backed unsecured loan" — an extremely common product in UK SME lending — is unsecured against the company but secured, in effect, against the director. Read every unsecured offer for a guarantee clause before comparing rates, because a cheap rate with a PG and a dearer rate without one are not the same product. Some lenders, Credicorp included, lend without personal guarantees at all: our business loans are made to the company, and our claim in a default is against the company alone.
Why secured loans are cheaper — and what the discount buys
Security lowers the lender's loss when a loan fails, so secured money is cheaper, larger and longer: commercial mortgages, asset finance and secured term loans routinely run to years and six figures where unsecured lending will not. The discount is real, but you pay for it in three other currencies. Flexibility: charged assets cannot be sold or refinanced without consent, and a debenture can make any future borrowing harder because the next lender ranks behind. Time: valuing assets and registering charges takes weeks, against hours or days for small unsecured lending. And consequence: an unsecured default is a debt collection problem; a secured default is losing the asset — or, with a PG, a personal one.
Matching the tool to the job
The pattern that serves most small companies well: secure long money against long assets, keep short money unsecured. A ten-year loan to buy premises secured on those premises is coherent — the asset outlives the debt and generates the income that services it. Hire purchase on a van that starts earning immediately is equally coherent. What is not coherent is granting a debenture over the whole company, or signing a PG, to cover a three-week cash-flow gap — pledging everything, indefinitely, for something small and temporary. Short gaps belong with small, fast, genuinely unsecured borrowing that expires when the gap closes.
A worked example at the small end
Illustrative example. A catering company needs £400 to hire equipment for a wedding booking that pays out in six weeks. Route one: the director's bank offers to extend the company overdraft — with a personal guarantee. Cost: modest interest, plus the director's personal exposure to every penny of company borrowing, lasting as long as the guarantee does (guarantees typically cover the facility, not the single transaction). Route two: an unsecured short-term loan of £400 over 42 days at 0.25% per day — £42 interest plus a £5 establishment fee, £47 all in, no charge registered, no guarantee signed, finished the day the wedding invoice clears. Representative example: borrow £200 for 30 days, repay £220. The overdraft's headline rate is lower; the loan's total exposure is smaller by every measure that matters if something goes wrong.
Questions to ask before granting any security
Five questions expose the real shape of a secured offer. Exactly which assets does the charge cover, and does a debenture sweep in future assets? What events trigger enforcement — missed payments only, or covenant breaches too? Is a personal guarantee required as well as the charge (belt and braces is common), and is it capped or unlimited? What does releasing the security cost and how long does it take once the loan is repaid? And how does this charge affect the company's ability to borrow from anyone else while it exists? How plainly a lender answers all five will tell you as much as the answers themselves. Our guide on choosing a business lender extends this checklist.
The short version
Secured lending is the right price for big, long, asset-shaped borrowing. Unsecured lending is the right shape for small, short, cash-flow borrowing — provided it is genuinely unsecured, with no guarantee hiding in the paperwork. If your need is in the second category and your company has been trading six months or more, you can check eligibility with a soft search and apply online; loans run £50 to £500 over 14 to 84 days, to the company, with no personal guarantee.
Frequently asked questions
- What can be used as security for a UK business loan?
- Fixed charges cover commercial or residential property, vehicles, machinery and equipment. A floating charge covers stock, debtors and cash. A debenture combines both and takes in the whole business. Personal guarantees sit alongside these — legally a promise rather than a charge, but exposing the director's personal assets to the company's debt in practice.
- Is a personal guarantee the same as a secured loan?
- In practice, close to it. A secured loan gives the lender a claim over specific company assets. A personal guarantee reaches further, letting the lender come after you personally if the company defaults. Many loans marketed as unsecured require a guarantee, so always check the offer documents. Credicorp lends without personal guarantees.
- Are unsecured business loans more expensive than secured ones?
- Per pound per day, usually yes — the lender carries more risk and prices for it. But total cost depends on size and duration, not just rate: a small unsecured loan held for five weeks can cost far less in absolute terms than the arrangement, valuation and legal fees on a secured facility, and it carries no risk to charged assets or personal property.
- What happens if a company defaults on an unsecured loan with no personal guarantee?
- The debt remains a claim against the company: the lender can pursue it through reminders, collection and ultimately court action against the company, and a CCJ would sit on the company's credit record for six years. The directors' personal assets are not at risk, provided they have acted properly — limited liability holds unless there has been wrongful trading or fraud.