A loan is described as unsecured when it is not backed by a specific asset pledged as security. Instead of relying on collateral, the lender relies on the company's standing and its legal obligation to repay.
Unsecured versus secured
A secured loan gives the lender a claim over a named asset, such as property or equipment, if the loan is not repaid. An unsecured loan has no such pledge, so the assessment focuses more on the company's circumstances and ability to repay.
- No specific asset is pledged against the borrowing.
- The lender assesses the company's overall position.
- Terms can differ from secured borrowing because the risk profile is different.
What this means for your company
Whether a particular facility is secured or unsecured is set out in your agreement. An unsecured facility does not mean there are no consequences for non-payment; the company remains legally obliged to repay what it owes.
Credicorp lends only to UK limited companies and LLPs for business purposes and does not take personal guarantees from directors. Whether a Credicorp facility is secured or unsecured is defined in your own paperwork. Credicorp is an exempt business lender, so the Financial Ombudsman Service and FSCS do not apply.
See also: What is collateral?, Secured vs unsecured business loans: what's the difference? and What is asset finance?.