Are Small Business Loans Secured or Unsecured?

The main difference is whether you provide an asset as security against the money you borrow.

A secured business loan uses an asset, such as property or equipment, as security for the borrowing. An unsecured business loan does not use a business asset as security.

That difference can affect the amount you can borrow, the cost of the finance, the application process and what could happen if you cannot repay the loan. 

So, which is right for your business?

The answer depends on your circumstances, the amount you need to borrow, what you need the money for and the finance options available to you.

Originally published: 18 December 2024
Updated: 19 August 2026

A secured business loan is borrowing where an asset is provided as security against the loan.

The asset could be something such as:

• Commercial property
• Land
• Machinery
• Vehicles
• Equipment
• Other significant business assets

The lender has a legal interest in the asset used as security. If the business fails to repay the borrowing in line with the agreement, the lender may be able to take steps to recover the debt from the secured asset.

The exact arrangements depend on the lender, the loan and the asset being offered.

The British Business Bank describes secured loans as finance where collateral, such as property, vehicles, land or machinery, is used as security against the amount borrowed.

Security can reduce the lender's risk.

Because the lender has an asset against which it can potentially recover the debt, secured finance can sometimes offer access to larger amounts, longer repayment periods or lower interest rates than comparable unsecured borrowing.

However, these aren't guaranteed outcomes. Every lender has its own criteria and pricing.

The British Business Bank notes that secured loans are generally cheaper than unsecured loans because they represent lower risk for the lender. It also highlights that secured loan applications can take longer because of matters such as valuations and other legal requirements.

An unsecured business loan is borrowing that isn't secured against a business asset. This means you don't normally have to offer property, machinery or another asset as collateral for the loan. 

That doesn't mean the borrowing is risk-free. You are still responsible for making the agreed repayments, including interest and any applicable fees.

Depending on the lender and product, you may also need to provide a personal guarantee. A personal guarantee is an agreement that can make you personally responsible for repaying some or all of the borrowing if the business cannot repay it.

So, when you see the word "unsecured", don't interpret it as "nothing is at risk". It simply means that a specific asset isn't being used as security for the loan.

The main difference is whether an asset is used as security against the borrowing.

A secured business loan uses an asset as security for the money you borrow. Depending on the lender and type of finance, this could include property, land, machinery, vehicles or other business assets.

Key things to know:

• An asset is provided as security.
• The asset could be at risk if you don't maintain the agreed repayments.
• You may be able to borrow more, depending on the value of the security and the lender's criteria.
• Interest rates can be lower than comparable unsecured finance.
• The application process can take longer if the asset needs to be valued or legal work is required.

An unsecured business loan doesn't use a specific business asset as security for the borrowing.

Key things to know:

• You don't provide a specific asset as security.
• You may be able to apply without having significant business assets.
• Interest rates can be higher than comparable secured finance because the lender is taking more risk.
• A personal guarantee may still be required, depending on the lender and product.
• The application process may be simpler because there is no asset to value or secure.

Neither is automatically better.

A secured loan may suit a business with suitable assets that wants to explore larger borrowing or potentially lower-cost finance. An unsecured loan may be more appropriate for a business without suitable assets or one that doesn't want to use an asset as security.

The right choice depends on your business, how much you need to borrow, what you need the money for and what you can afford to repay.

They can be. Because an unsecured loan doesn't have an asset provided as security, the lender may consider it higher risk.

The British Business Bank explains that unsecured loans typically have higher interest rates than secured loans because they represent greater risk for the lender.

But you shouldn't compare secured and unsecured finance on interest rate alone.

Look at the total cost of borrowing, including:

• Interest
• Arrangement or completion fees
• Other charges
• Repayment term
• Monthly repayments
• Any early repayment charges
• Security requirements
• Personal guarantees

A loan with a lower interest rate isn't automatically the better option if it requires you to put a valuable asset at risk or doesn't suit your business's circumstances.

No. Property is one type of security, but it isn't the only possibility.

Depending on the lender and finance product, security could include assets such as:

• Machinery
• Vehicles
• Equipment
• Land
• Commercial property

The type and value of security a lender will accept varies. Some businesses may have substantial assets that could potentially be used as security. Others may have very few assets available. That doesn't necessarily mean that a business without significant assets cannot access finance.

Unsecured finance may be an option, depending on the lender's criteria and the circumstances of the business.

They can. A personal guarantee is separate from security provided by a business asset.

With a secured loan, an asset belonging to the business may be used as security. With a personal guarantee, an individual agrees that they may become personally responsible for repaying the borrowing if the business cannot.

This is why it's important to understand the terms of a loan before agreeing to it. Don't assume that an unsecured business loan means you have no personal liability. The exact requirements vary between lenders and products.

There isn't a universal answer. It depends on the lender and your business.

A secured loan may be more suitable for a business with valuable assets that can be offered as security. An unsecured loan may be more suitable for a business that doesn't have significant assets available or doesn't want to put assets forward as security.

But lenders can also consider other factors, including:

• Credit history
• Trading history
• Turnover
• Profitability
• Cash flow
• Existing borrowing
• Business plans
• Financial forecasts
• Affordability
• The purpose of the borrowing

The British Business Bank notes that lenders typically look for a trading history and proven track record, while CDFIs can consider businesses with limited assets, trading histories or track records.

So the question isn't simply: "Which type of loan is easiest to get?" It is: "Which type of finance is appropriate for my business and the lender's criteria?"

New businesses can find conventional business finance difficult to access because they have limited trading history and financial information.

The British Business Bank's guidance explains that early-stage businesses can struggle to access traditional debt finance because lenders often want to see a trading history and proven track record.

However, there are finance options specifically designed for newer businesses.

Start Up Loans are unsecured personal loans for business purposes.

This means eligible applicants don't need to provide an asset, such as their home or business property, as security for the loan.

The British Business Bank describes Start Up Loans as government-backed unsecured personal loans designed to help eligible founders start or grow a business.

However, because the loan is a personal loan, the borrower remains responsible for repaying it. If you're starting or growing an early-stage business, you can find out more about Start Up Loans.

A secured loan can offer several potential advantages.

You may be able to borrow more

Providing an asset as security can potentially allow a lender to offer a larger amount than it might consider for unsecured borrowing. The amount available will depend on the lender, the value of the security and the wider circumstances of the business.

The interest rate may be lower

Because the lender has security, the loan may carry a lower interest rate than comparable unsecured borrowing. This isn't guaranteed, so always compare the actual cost of the finance.

You may have longer to repay

Some secured lending can be structured over a longer period, which can reduce the size of individual repayments. However, a longer term can also mean paying interest for longer, increasing the total cost of borrowing.

The biggest consideration is the security itself.

If you don't maintain the agreed repayments, the asset used as security could be at risk. There can also be additional work involved in arranging secured finance.

For example, an asset may need to be valued and legal checks may be required before the loan can be completed. This can make the process longer than some forms of unsecured borrowing.

Before choosing secured finance, make sure you understand exactly what asset is being used as security and what could happen if your business cannot repay the borrowing.

The main attraction of unsecured finance is that you don't have to offer a specific business asset as security.

This can be useful if:

• Your business has few assets
• Your assets aren't suitable as security
• You don't want to put a particular asset at risk
• You need finance without securing it against property or equipment

An unsecured loan can also have a simpler application process in some circumstances because there may be no need to value an asset or complete the associated legal work. However, this doesn't mean every unsecured loan is quick or easy to obtain.

The lender still needs to assess your application.

The lender is taking more risk when there is no asset securing the borrowing. As a result, unsecured loans can have higher interest rates than comparable secured finance.

There may also be limits on how much you can borrow. A lender could consider your credit history, trading history, financial performance and affordability particularly important when assessing an unsecured application.

And, as we've already explained, an unsecured loan can still involve a personal guarantee.

There isn't a universal answer. The right choice depends on your circumstances.

A secured loan could make sense if you have suitable assets available and want to explore the possibility of borrowing a larger amount or spreading repayments over a longer period. An unsecured loan could make more sense if you don't have suitable assets or don't want to provide an asset as security. But security is only one part of the decision.

You should also consider:

How much do I need to borrow?

Borrowing more than you need can create unnecessary repayment commitments.

What will I use the money for?

The purpose of the finance can influence which type of funding is appropriate.

Can my business afford the repayments?

Look at your cash flow, existing commitments and expected income.

What will the finance actually cost?

Consider interest, fees and the total amount repayable.

What happens if my circumstances change?

Think about what would happen if sales fell or an unexpected cost arose.

Ultimately, the cheapest or most accessible finance isn't necessarily the best finance. The best option is one that fits your business and that you can afford to repay.

Not having assets available doesn't automatically mean you cannot access business finance. Unsecured finance may be available, depending on your circumstances and the lender's criteria.

There are also specialist lenders that consider applications from businesses with limited assets.

CDFIs, for example, use a relationship-focused approach that can allow them to consider the wider fundamentals of a business and the people behind it. This is particularly relevant if you've been turned down by a high street bank because you don't have sufficient security.

A rejection from one lender doesn't necessarily mean another lender will make the same decision.

BEF is a not-for-profit Community Development Finance Institution. Our approach recognises that small businesses don't all have the same financial history, assets or circumstances.

We consider the wider picture when assessing applications, including the business, the purpose of the finance and its ability to repay the borrowing. The type of finance available will depend on the individual circumstances and the product being considered.

If you're unsure which BEF finance option could be suitable for your business, you don't need to work it out yourself.

Answer a few questions about your business and what you're looking to achieve, and our Find your finance tool will help you identify the BEF finance options that could be most relevant to you.

Before applying, compare the options carefully.

Ask yourself:

• Do I have an asset that I could offer as security?
• Am I comfortable putting that asset at risk?
• How much do I actually need to borrow?
• What will the total cost of the finance be?
• Can my business afford the repayments?
• Would an unsecured option be available?
• Would a personal guarantee be required?
• How quickly do I need the funding?
• Does the lender understand my type of business?
• Are there other types of finance that might be more appropriate?

Taking time to answer these questions can help you avoid choosing finance based on one feature, such as the interest rate or speed of application.

A secured business loan uses an asset as security. An unsecured business loan does not.

Secured finance may offer potential advantages such as lower interest rates or access to larger amounts, but your asset could be at risk if you don't maintain repayments.

Unsecured finance doesn't require a specific asset as security, but it can be more expensive and may still require a personal guarantee. Neither is automatically better.

The right choice depends on your business, your funding requirements and what you can afford to repay. If you're unsure which type of finance could be suitable, use our Find your finance tool.

What is a secured business loan?

A secured business loan is borrowing where an asset is provided as security against the loan. Depending on the lender and product, this could include property, land, machinery, vehicles or other significant assets.

What is an unsecured business loan?

An unsecured business loan is borrowing that isn't secured against a specific business asset. However, the lender may still have other requirements, such as a personal guarantee, depending on the product and your circumstances.

Is an unsecured business loan better than a secured loan?

Not necessarily. An unsecured loan avoids putting a specific asset forward as security, but it can have a higher interest rate. A secured loan may offer different borrowing amounts or terms, but the asset used as security could be at risk if repayments aren't maintained.

Are unsecured business loans more expensive?

They can be. Because there is no asset securing the borrowing, an unsecured loan can represent greater risk to the lender and may therefore have a higher interest rate than comparable secured finance.

Can I get a secured business loan without owning property?

Potentially. Property is one form of security, but lenders may accept other assets depending on the finance product and their criteria. These could include machinery, vehicles or equipment.

Can I get an unsecured business loan with bad credit?

It depends on the lender and your circumstances. Credit history can form part of an assessment, but lenders have different criteria. A poor credit history doesn't automatically mean every lender will reject an application.

Do unsecured business loans require a personal guarantee?

They can. An unsecured loan doesn't use a specific asset as security, but a lender may require a personal guarantee. Check the terms carefully before agreeing to any borrowing.

Are Start Up Loans secured or unsecured?

Start Up Loans are unsecured personal loans for business purposes. They don't require an asset to be provided as security, subject to the scheme's terms and eligibility requirements.

What happens if I can't repay a secured business loan?

If you don't maintain the agreed repayments, the asset provided as security may be at risk. The exact consequences depend on the loan agreement and the lender, so you should understand the terms before taking out secured finance.

Can I get business finance if I don't have assets?

Possibly. Unsecured finance doesn't require a specific business asset to be provided as security. Specialist lenders, including CDFIs, may also consider businesses with limited assets, depending on their circumstances and lending criteria.

Secured and unsecured loans both have a place in business finance.

The important thing is understanding the difference and choosing finance that makes sense for your circumstances.

If you're not sure which type of finance is right for you, use our Find your finance tool.

Answer a few questions about your business and funding needs, and we'll help you identify the BEF finance options that could be most relevant.