Why More UK SMEs Are Turning To Secured Business Loans In 2025

In 2025, small and medium-sized businesses (SMEs) in the UK are dealing with a more complicated financial situation than ever before.

As interest rates rise, lenders become more cautious, and the economy continues to adjust to changes that happened after the pandemic, business owners are becoming more strategic about how they fund growth, manage cash flow, and deal with uncertainty.

A lot of small and medium-sized businesses have used unsecured business loans in the past because they are quick and easy to get. But this year, more and more people are choosing secured loans because they are more stable and cost-effective. What made the change?

This article looks at the main reasons for the change and why secured lending is becoming the best option for small and medium-sized businesses in the UK. Unsecured business loans can still be useful in some situations, but secured financing might give businesses the long-term security and growth they need.

The Current SME Finance Landscape In The UK

The financial needs of small and medium-sized businesses in the UK are growing as we move into 2025, and so are the problems they face.

Costs of doing business are still high because of rising energy prices, inflation, and the unpredictability of the supply chain. Many businesses are also looking for ways to grow, enter new markets, or invest in technology, all of which need easy access to capital.

But getting that money isn’t as straightforward as it used to be. Banks and other lenders are being more careful, especially when it comes to lending without collateral. Stricter credit scoring models have resulted in fewer approved unsecured loans, particularly for newer or less profitable businesses.

Because of this, business owners are looking at their funding options again. Instead of going after quick cash, many people are putting affordability, flexibility, and long-term sustainability first. This shift is pushing them towards secured lending.

Secured loans used to be only for big businesses, but now they’re considered a good option for small businesses that want to stay stable in a lending environment that is becoming more conservative.

Limitations of Unsecured Business Loans

People often say that an unsecured business loan is quick and easy to get. Businesses that need short-term working capital or quick funding often choose this option because it doesn’t require collateral, which speeds up the approval process and makes the paperwork easier. But in 2025, it will be harder to ignore the problems with unsecured loans.

Lenders have raised interest rates on most unsecured products because they are taking on more risk. The maximum loan amounts are also set more conservatively, which may not be enough for SMEs that are growing. Terms for repayment are usually shorter, which makes cash flow even tighter. And the rules for getting approved have gotten stricter, especially for businesses that don’t always make money or don’t have a long credit history.

Many business owners have changed their minds because of this change. An unsecured business loan can still be helpful for short-term fixes, but it isn’t always the best choice for big investments, refinancing, or growth. As the cost of borrowing goes up, small and medium-sized businesses are looking for more affordable, scalable options. That’s where secured loans come in.

Why Secured Loans Are Gaining Popularity

More small and medium-sized businesses in the UK are turning to secured loans because of the rising costs and limitations of unsecured borrowing. It’s straightforward to see why. Secured loans give lenders more security by using business assets as collateral. This, in turn, gives the business owner better borrowing terms.

This often means lower interest rates, bigger loans, and longer repayment periods in 2025. These are three big benefits for companies that are planning ahead or growing.

Secured loans give small and medium-sized businesses access to money that they wouldn’t be able to get through unsecured loans. Their advantage is that they have valuable physical assets like property, equipment, or vehicles.

Even businesses with bad credit are getting better approval rates when they can offer security. This makes secured lending more open and useful, especially in a lending market that is sensitive to risk.

Many small and medium-sized businesses must weigh the trade-offs involved. If getting money quickly is your only goal, an unsecured business loan might still be a good idea. But for people who want stability, low costs, and growth, secured funding is becoming a better option.

What Assets Are SMEs Using to Secure Loans?

In 2025, SMEs are increasingly adopting secured lending due to the versatility of collateral options. You don’t need to own commercial property to qualify — many lenders now accept a broad range of tangible and financial assets.

Here are some of the most commonly used:

• Commercial property or real estate – One of the strongest forms of collateral, offering access to high loan values.
• Vehicles or machinery – Especially useful for logistics, construction, and manufacturing businesses.
• Inventory or stock – Retail and wholesale businesses often use unsold stock to secure working capital.
• Outstanding invoices – Common in invoice financing, where receivables are leveraged to improve cash flow.

Before giving you terms, lenders will look at the asset’s value, condition, and how easy it is to sell. But in most cases, businesses can get better loan terms by offering security.

As more small and medium-sized businesses (SMEs) realise the untapped value in their own balance sheets, they are using their assets in smart ways to get the money they need, often on better terms than a traditional unsecured business loan would give them.

Case Study or Example: A Business Choosing Secured Over Unsecured

In 2025, let’s look at a real-life example of how secured lending is helping UK small and medium-sized businesses make better choices about how to get money.

What if a Manchester-based logistics company that was growing needed £250,000 to buy more trucks and meet the needs of more customers? At first, they asked for an unsecured business loan, but they were only given £90,000 at a high interest rate and a 12-month repayment period. It wasn’t enough, and the payments would have made their monthly cash flow tight.

Instead, they went to a lender who offered secured loans and put up three commercial vehicles as collateral. As a result, they were able to get the full £250,000 at a much lower interest rate, with a five-year term that made it simple to pay back each month. The loan let them grow without losing money or taking on too much risk.

This example shows a trend that is becoming more common: businesses can get bigger, cheaper loans by using assets they already own, which is much better than an unsecured loan.

Is There Still a Role for Unsecured Business Loans in 2025?

Even though secured loans are becoming more popular, flexible unsecured business loans are still essential for small and medium-sized businesses, especially in industries that move quickly or don’t have a lot of assets.

They remain ideal for:

• Short-term cash flow needs
• Urgent opportunities like flash inventory deals or seasonal spikes
• Newer businesses without significant collateral
• Companies in consulting, tech, or services, where physical assets are minimal

Their main strengths are how fast and flexible they are. An unsecured loan is a quick way to get money when you need it right away and don’t have time to value your collateral, even if it costs more.

In 2025, a lot of small and medium-sized businesses are using a mix of secured and unsecured loans. They use secured loans for big, planned investments and unsecured loans for quick, tactical funding.

When used together in the right way, both types of loans can make a balanced and flexible funding plan that works for both short-term and long-term stability.

Final Thoughts: Making the Right Choice for Your SME

As the economy changes, UK small and medium-sized businesses are becoming more strategic about how they borrow money, putting long-term stability ahead of short-term speed.

Unsecured loans are still useful, especially for urgent or short-term needs, but the move towards secured lending is part of a larger trend: business owners want lower costs, more funding options, and more predictable repayment plans.

A secured loan could give your business a lot more freedom and financial power than an unsecured business loan ever could, especially if it has valuable assets like vehicles, property, or inventory.

Funding Guru helps small and medium-sized businesses make these decisions with ease. Our team can help you find the best solution for your stage of growth, whether you’re ready to look into asset-backed lending or just want to weigh the pros and cons of both options.

Talk to one of our experts today to find out how strategic funding can help you grow with confidence in 2025.