Business Loans for Non-Homeowners UK
As a UK non-homeowner, you may be worried about your business not being able to secure business finance. However, there are a variety of options available for non-homeowners looking to secure business funding.
Non-homeowner business loans have become increasingly sought after in the UK due to a decrease in homeownership so there are a number of lenders who cater for non-homeowners.
As business loan eligibility is slightly different to personal loans, lenders favour applications from homeowners.
Even when applying for unsecured business loans, most lenders favour applicants who are homeowners as a fall back on in the event of a default on a loan, but you can still secure funding providing you apply with the right lender.
Taking some time to research different lenders, their target market and their eligibility criteria could save you money, as specialist lenders may be able to offer a more tailored service based on your individual circumstances than mainstream ones.
Understand Your Loan Requirements.
Before you start researching the best business loans for non-homeowners, it's important to understand your loan requirements. Ask yourself what's the purpose of your business loan and how much you will need? You should also consider any additional costs and conditions that may impact the loan. This can help you determine which business financing options are best suited to your needs.
For general business lending requirements, unsecured loans are a great option. However, these can be more difficult to obtain for non-homeowners.
For high value lending over longer periods of time then secured lending may be the best option. They can also be easier for non-homeowners to obtain.
Unsecured Business Loans for Non-Homeowners
Unsecured business loans are a popular option for businesses that don't own their own land, property or have assets to refinance.
As the name suggests, unsecured financing does not require any physical collateral in exchange for the funds.
Approvals and borrowing amounts are based on factors such as business credit score, profitability, debt levels and trading time. In some cases, you may need a personal guarantor to sign off on the loan as an extra layer of security for the lender. Please note that different lenders have different criteria and all proposals are subject to underwriting and acceptance, conditions may apply.
You need to be aware that lenders are still able to seize assets on unsecured loans to recoup any owned monies. This coupled with most lenders requiring a personal guarantee on loans, is one of the reasons why personal guarantee insurance is becoming increasingly popular as a way to secure personal assets.
Common uses for unsecured finance include:
- Business Development Loans - Find out more
- Corporation Tax Loans - Find out more
- Debtors Funding Loans - Find out more
- Income Tax Loans - Find out more
- Partner Buy In Buy Out Funding - Find out more
- Refurbishment Loans - Find out more
- VAT Funding Loans - Find out more
- Working Capital and Cash Flow Finance - Find out more
An important thing to remember is that secured business loans are not always secured on your home, like personal loans usually are. Secured business loans can be secured on commercial property, commercial land or business assets.
Which type of secured loan that is best suited to your needs depends on what type of assets you have available.
For property and land, then commercial mortgages and remortgaging are available. For assets such as machinery, plant equipment, then asset finance and refinancing are an option.
Asset Finance and Refinance
You can use asset finance to purchase new assets, or if you are looking to boost your company cashflow, you can refinance existing assets.
Asset finance uses asset(s), usually machinery, plant equipment or some types of property, which are offered to the lender as collateral.
Asset finance is a great way for small businesses to preserve their cash flow and working capital. Instead of tying up a large amount of money in purchasing equipment outright, businesses can spread the cost over time through regular payments. This allows you to keep more cash on hand for other important expenses.
Asset finance can also help improve your business credit score. By making regular payments on time, businesses can demonstrate their ability to manage debt responsibly and improve their creditworthiness. This can make it easier for you to secure future financing and negotiate better terms with suppliers and vendors.
For refinancing assets, you can release any equity, based on the current market value, held in assets to raise funds. You need to be aware that depreciation will impact the value of assets and you need to be aware of how much the assets are worth.
All asset refinance lenders will carry out independent valuations of assets prior to agreeing loan amounts.
Commercial Mortgages and Remortgaging
If your lending requirements are to purchase a commercial property, a commercial mortgage can be a good option.
Commercial mortgages can be a cost-effective way to access capital and grow your business providing you have sufficient funds to complete the purchase.
Most lenders will offer up to 60% LTV (loan to value) with you paying the remaining amount out of your own funds.
If you are looking to release cash tied up in your commercial property, then a remortgage can be suitable option, providing you have enough equity in the property to meet your borrowing needs.
There are a wide range of lenders who offer mortgaging facilities and the amount you can release is based on the current market value of the property.
Many businesses opt to remortgage to release equity, as many properties will have increased in value since the purchase date giving you access to higher levels of borrowing.
You need to remember that the loan is secured on the property and missed payments will put your assets as risk.
How is an Unsecured Loan Different from a Secured loan?
Unsecured loans are a popular option, however for some companies with poor credit, short trading time (start-ups) or low profits, secured lending will most likely be their only option.
Each loan type has its own set of advantages and disadvantages, and it's important to understand the differences between them before deciding which one is right for you.
In theory there is no limit on much you can borrow with unsecured lending, but how much you can actually borrow depends on your affordability assessment, as well as the lender's appetite to lend. With secured lending you are limited by how much equity you have in the asset, and what loan to value (LTV) the lender is will to go to.
Unsecured loans tend to have a maximum term of 5 years, while secured loans are available for longer terms (max 20 years). Asset finance is usually 5 years but can sometimes be a maximum term of 7 years depending on the asset. Commercial Mortgages can be up to 25 years.
The type of loan that is right for you depends on your individual financial situation and needs. If you have collateral to offer and are looking to borrow a larger amount of money, a secured loan may be the better option. However, if you don't have collateral or don't want to risk losing it, an unsecured loan may be the way to go. It's important to carefully consider the terms and interest rates of each type of loan before deciding.
What is a personal guarantee on an unsecured business loan?
UK non-homeowners looking for business loans might be asked to provide a director's personal guarantee to secure the loan. This means you are offering assets as security, with the understanding that if the business fails to make repayments, you become personally liable for paying off the debt. Before agreeing to sign a personal guarantee, it is important to understand what you are signing. If you are not sure RLA Capital would recommend seeking independent legal advice.
If you do provide a personal guarantee then you can apply for PGI (personal guarantee insurance), which can cover your assets in the event of defaulting on your loan.
Whilst RLA Capital cannot offer financial advice, we can provide various business loans to assist with cash flow. RLA Capital would recommend speaking with your accountant if you are experiencing financial problems.
Updated: April 27, 2023