A secured loan is backed by an asset, such as property, vehicles or equipment, which the lender can take and sell if you don't repay. An unsecured loan has no specific asset behind it, so it's usually quicker but smaller and more expensive. For limited companies, "unsecured" loans almost always still need a personal guarantee from the directors.
When a lender gives you money, it wants a way to get it back if things go wrong. With a secured loan, that's a specific asset. With an unsecured loan, it's your business's ability to pay and, very often, a promise from you personally.
Neither is better in every case. This guide explains how each works, what "security" really means in practice, and how to choose.
What "secured" means
A loan is secured when the lender has a legal right over an asset, called a charge. If you don't repay as agreed, the charge lets the lender take the asset, sell it and use the money to clear what's owed. Until then, you keep using the asset as normal.
Security comes in a few forms.
Property-backed security
The lender takes a charge over land or buildings. This can be commercial property the business owns, or a director's or owner's home.
- A first charge means the lender is repaid first from any sale.
- A second charge ranks behind an existing mortgage. The first lender usually has to agree before one can be added.
Because property holds its value well, property-backed loans tend to offer the largest amounts, the longest terms and the lowest rates. They're also the slowest: expect a valuation, legal work and fees for both.
If your home is involved, take legal advice first. The rules and protections that apply depend on who's borrowing and how the loan is set up.
Asset-backed security
Here the security is a specific business asset, such as vehicles, machinery or equipment. Hire purchase and leasing are the most common examples: the lender owns or has a right over the asset until it's paid for. Some lenders will also lend against equipment you already own, called asset refinance.
Invoice finance works similarly, using the money customers owe you as the security.
Debentures: fixed and floating charges
A debenture is a document that gives a lender security over a company's assets in general, not just one item. It usually contains two kinds of charge:
- A fixed charge covers specific assets, such as property, equipment or intellectual property. You can't sell those assets without the lender's agreement.
- A floating charge covers assets that change day to day, like stock and cash. You can trade with them freely. If the company defaults or becomes insolvent, the charge "crystallises" and fixes onto whatever assets are there at that moment.
Lenders register charges created by a company at Companies House, normally within 21 days of the charge being created, because an unregistered charge can't be relied on if the company becomes insolvent. That means they show on the public record, where other lenders, suppliers and credit agencies can see them. A debenture may make it harder to borrow elsewhere, since a new lender would rank behind the existing one. When the loan is repaid, make sure the charge is recorded as satisfied, so the record is clean.
How security affects what you can borrow
Secured lenders don't lend the full value of the asset. They lend a percentage of it, called the loan-to-value, to leave a cushion in case they have to sell at a lower price than expected. Property usually supports a higher percentage than vehicles or machinery, because it's easier to value and tends to hold its value. Specialist equipment that few buyers would want supports less.
So the amount you can raise depends on both the asset and your trading. A lender still needs to see that the business can afford the repayments. Security reduces its loss if things go wrong; it doesn't replace the need to show you can pay.
What happens if you can't repay
With a secured loan, the lender can enforce its charge. For an asset, that usually means taking the vehicle or equipment back and selling it. For property, it can mean taking possession and selling. A lender with a debenture that includes a qualifying floating charge can, in some circumstances, appoint an administrator to take control of the company.
If the sale doesn't clear the debt, the shortfall is still owed, and the lender can pursue it like any other debt, including under any personal guarantee.
What "unsecured" means
An unsecured loan has no charge over a specific asset. The lender decides mainly on your trading: bank statements, turnover, profit and credit history. If you don't repay, it has to pursue the debt through the courts, the same as any other creditor.
Unsecured business loans are usually:
- Smaller, often linked to your turnover.
- Shorter, commonly one to five years.
- Quicker, sometimes funded within days, because there's no valuation or legal work on an asset.
- More expensive, because the lender takes more risk.
Why "unsecured" usually still means a personal guarantee
This is the part that surprises many directors. When a limited company borrows, the company is a separate legal person. If it fails, the directors aren't normally liable for its debts. Lenders know this, so for unsecured loans to companies they almost always ask the directors for a personal guarantee: a promise to repay the debt personally if the company can't.
So an "unsecured" loan isn't a risk-free loan for you. The lender has no charge over your home on day one. But if the guarantee is called in and you can't pay, it can take court action against you, which can lead to a charge over your property later.
Read personal guarantees explained before you sign one.
Sole traders and partners are already personally liable for business debts, so a guarantee isn't needed in the same way.
Secured vs unsecured compared
| Secured (property) | Secured (asset or debenture) | Unsecured | |
|---|---|---|---|
| What backs it | Land or buildings | Vehicles, equipment, or company assets | Your trading and usually a personal guarantee |
| Typical amounts | Largest | Often linked to the asset's value | Smaller, often linked to turnover |
| Typical terms | Longest, can run many years | Often matched to the asset's life | Commonly one to five years |
| Cost | Usually the lowest rates, plus valuation and legal fees | Usually lower than unsecured | Usually the highest of the three |
| Speed | Weeks | Days to weeks | Often days |
| What's at risk | The property | The asset, or company assets under the charge | Your personal assets, through a guarantee |
| Where it's recorded | Companies House if the company grants it; HM Land Registry for any charge on property | Companies House, for a company's charges | No charge to register |
Which should you choose?
Start with what the money is for and how long you'll need it.
- Buying a specific asset? Asset finance is the natural fit. The asset secures the deal, so it's often cheaper and easier than a general loan.
- Borrowing a large sum over many years? Property security usually gets the best terms, if you have property and are comfortable using it.
- Need money quickly, for a short period? An unsecured loan is usually faster and simpler, even if it costs more.
- Already have a debenture with your bank? Another lender may still help, but expect it to ask what's already secured.
Think hard about what you're putting at risk. A cheaper loan secured on your home isn't better value if the business hits trouble and you lose the house.
An illustration, not a quote. A company needs £150,000 to fit out a second site. An unsecured lender offers £60,000 over three years, with a personal guarantee from both directors, funded within a week. A property-backed lender offers the full £150,000 over ten years at a lower rate, secured on the company's freehold, but needs a valuation and legal work, with fees and several weeks' wait. The cheaper money takes longer and puts the building on the line; the faster money is smaller, costs more and relies on the directors personally. Your own figures will depend on your business.
Common mistakes to avoid
- Assuming unsecured means no personal risk. A personal guarantee can reach your home and savings in the end.
- Comparing rates without fees. Secured loans often carry valuation, legal and arrangement fees. Compare the total cost.
- Not reading the debenture. It can restrict selling assets or borrowing elsewhere without the lender's consent.
- Forgetting old charges. A satisfied loan with a charge still showing at Companies House can slow down your next application.
- Securing short-term needs on long-term assets. Putting property up for a three-month cash gap is rarely worth the cost and risk.
If you've been turned down for one type, the reason often points to the other. Our guide to what to do when a business loan is declined explains how to find out why.
Questions people ask
Is a secured business loan cheaper than an unsecured one?
Usually, because the lender takes less risk. But secured loans often carry extra costs, such as valuation and legal fees, so compare the total amount you'll repay rather than the headline rate.
Can I get an unsecured business loan without a personal guarantee?
It's possible but uncommon for limited companies, especially smaller or younger ones. Lenders almost always ask directors to guarantee unsecured loans. Some lenders may waive it for larger, established businesses with strong accounts.
What is a debenture on a business loan?
A debenture gives a lender security over a company's assets, usually through a fixed charge on specific assets and a floating charge on things like stock and cash. It's registered at Companies House, so it's on the public record.
Can I use my home as security for a business loan?
Yes, some lenders will take a charge over your home. It can get you a larger loan at a lower rate, but if the loan isn't repaid you could lose your home. Take independent legal advice before agreeing.
Do unsecured loans show at Companies House?
No. Only charges, such as those in a debenture or a charge over property, are registered there. An unsecured loan will usually show on the company's credit file instead, and a personal guarantee may lead to a search of your personal credit file.
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This guide is general information, not financial advice. Rates, rules and lender criteria change, so check the details with your broker or lender before you sign anything. Lending Lenny is not a lender.
