Does my company need security to borrow?

Not always. A lot of business finance for limited companies is unsecured, meaning the funder takes no legal claim over the company's assets. But unsecured usually comes with a personal guarantee from the director, and larger or cheaper facilities often want security as well, typically a debenture over the company or a charge over property. The more security you give, the cheaper the money tends to be and the slower it is to arrange.

What counts as security

GOV.UK puts it simply: "A 'charge' is the security a company gives for a loan." A mortgage over property is one type of charge.

Common forms of security for a limited company:

• A charge over property the company owns.
• A debenture, which usually covers all the company's assets. See what is a debenture.
• The asset being bought, with asset finance, where the equipment itself secures the deal. See asset finance.
• The invoices, with invoice finance, where your sales ledger is the security. See invoice finance.

Charges a company gives have to be registered at Companies House within 21 days, and they appear on the company's public record.

Where the personal guarantee fits

A limited company is a separate legal person, so the director does not normally owe its debts. A personal guarantee changes that. GOV.UK's director guidance says: "You are responsible for any money owed by your company that has been personally guaranteed by you."

That is why "unsecured" can be misleading. The company's assets may be free, but you are on the hook. Our answer on personal guarantees covers what to check in the wording.

Secured vs unsecured, in practice

Sterling's take: before you choose, ask "what can they take if this goes wrong?" Then decide if the price difference is worth it.

A note on the Growth Guarantee Scheme

GOV.UK lists the Growth Guarantee Scheme as supporting term loans, overdrafts, asset finance, invoice finance and asset-based lending of up to £2 million per business group, for businesses with turnover that does not exceed £45 million. It is delivered through accredited lenders. Our funding partner does not arrange it, and Ask Sterling has no connection to it.

What to do next

Work out the repayment you can carry with the loan repayment calculator: a £100,000 loan at 18% APR over 24 months is £4,992.41 a month. Then read the business loans guide and ask any funder, in writing, exactly what security and guarantees they want before you spend time on an application.