Are sustainability loans secured or unsecured, and will I need a personal guarantee?
Short answer — the practical position
Sustainability loans can be either secured or unsecured depending on the lender, loan size, collateral available and the scheme used. Lenders often prefer secured lending for larger sums or when they need extra protections, and many lenders may also request a personal guarantee for smaller businesses or higher perceived risk. If you want a tailored view of options for sustainability funding, submit a Quick Quote for a rapid eligibility check.
What is a sustainability loan and why collateral matters
A sustainability loan funds energy efficiency upgrades, low-carbon equipment, renewable energy installations or other green projects. Lenders assess both the project and the borrower when deciding how the loan should be structured. If the project creates tangible assets (for example, solar panels, EV chargers or new plant equipment), those assets can be used as security to reduce lender risk.
Secured lending is appealing to lenders because the right to take collateral reduces potential losses if the borrower defaults. Unsecured loans rely entirely on the borrower’s creditworthiness and cashflow, so interest rates are typically higher and facility sizes are often smaller. Understanding what security you can offer early in negotiations helps you narrow lenders who will consider your application.
Typical secured and unsecured structures for sustainability finance
Secured sustainability loans commonly take the form of asset finance, hire purchase, lease arrangements or a charge against business assets. These loans can be structured as revolving facilities or fixed-term loans depending on the funding purpose and asset life. Security might be a fixed or floating charge over business assets, or specific security over the financed equipment.
Unsecured sustainability loans are more likely for smaller retrofits or when no suitable collateral exists. Peer-to-peer lenders, specialist green lenders and some bank sustainability products may offer unsecured facilities to qualifying businesses. However unsecured options often come with stricter affordability checks and higher pricing, especially for younger or lower-turnover SMEs.
When will a personal guarantee be required?
A personal guarantee is a promise from an individual (usually a director or shareholder) to repay the loan if the business cannot. Lenders ask for personal guarantees when the business’s balance sheet, trading history or available security doesn’t sufficiently mitigate lender risk. This is common for smaller limited companies, owner-managed businesses and where the facility is large relative to the company’s assets or turnover.
Not every sustainability loan requires a personal guarantee; for example, larger corporates with strong financials or projects backed by high-value assets may avoid them. Lenders also consider the guarantor’s financial position, so a limited guarantee or capped guarantee is sometimes negotiated to limit exposure. Always ask the lender how guarantees are worded, what liabilities they cover, and whether they can be time-limited or capped.
Lender types, schemes and practical examples
High-street banks, challenger banks, specialist green lenders, brokers and non-bank funders all offer sustainability finance, but each has different appetites for security and guarantees. Government-backed schemes and energy efficiency finance programmes sometimes offer softer terms, lower deposit needs or reduced guarantee requirements to encourage decarbonisation. For example, asset finance for solar installations is often secured against the panels themselves, while an unsecured working capital loan for insulation works may carry a personal guarantee.
Smaller projects under community or micro-grant schemes will rarely need personal guarantees, but commercial facilities above certain thresholds commonly do. If you are pursuing grant funding alongside commercial finance, clarify how the grant affects lender security and the need for guarantees. An experienced broker or lender adviser can compare offers and negotiate terms, including reducing or removing personal guarantees where possible.
What businesses should do next and how Best Business Loans helps
Start by preparing concise information about the project: cost, expected energy savings, useful life of installed equipment, projected cashflow impact and whether assets stay with the business. Provide your latest management accounts, balance sheet and business plan to prospective lenders so they can assess security needs and guarantee requests. This reduces surprises and increases the chance of receiving offers with favourable terms.
Best Business Loans does not provide loans directly; we help UK businesses find relevant lenders and brokers who specialise in sustainability funding. Use our Quick Quote to get a rapid Decision in Principle or eligibility check and be introduced to providers likely to accept your security profile. For more detail on the types of sustainability finance available and how they are typically secured, see our sustainability loans guide: https://bestbusinessloans.ai/loan/sustainability-loans/.
Practical tips to reduce the chance of a personal guarantee
Offer strong, tangible security such as new equipment or a fixed charge over business assets to reduce guarantee demands. Seek a capped or limited guarantee instead of an unlimited one to limit personal liability. Consider guarantor insurance, or ask for guarantees to be released after defined conditions are met, such as a period of good trading or repayment milestones.
Common scenarios — quick comparisons
Scenario A: Large manufacturer funding a rooftop solar array. Likely secured against the array or corporate assets, minimal personal guarantee if corporate covenant is strong. Scenario B: Small café upgrading to energy-efficient ovens with little balance sheet strength. Likely smaller unsecured loan or secured with a personal guarantee and higher rates. Scenario C: Fleet operator seeking EV chargers and vehicles. Often asset finance secured against vehicles; guarantees may be limited depending on company size and residual values.
How lenders explain guarantees and security
Lenders typically present security and guarantee conditions in the term sheet and loan agreement, describing what events trigger enforcement. They must be clear, fair and not misleading under UK advertising and financial promotions rules. Always request a written explanation of any personal guarantee, including who it covers, when it can be enforced and whether it is time-limited or capped.
Key takeaways — In short
Sustainability loans can be secured or unsecured; the structure depends on loan size, asset value and the borrower’s financial strength. Personal guarantees are common for smaller businesses or higher-risk facilities but can sometimes be limited, capped or avoided with adequate security. Preparing clear project and financial information and using a broker or matching service increases your chances of better terms and fewer personal liabilities.
Need help deciding? Next steps
If you want a quick, obligation-free check on likely funding routes and whether you’ll need to offer security or a guarantee, complete our Quick Quote. Best Business Loans will match your business to suitable lenders or brokers who actively provide sustainability finance. Using our AI-powered matching shortens the search and helps you compare realistic options quickly and securely.
Regulatory and compliance note
Best Business Loans is an independent introducer and does not provide credit or accept deposits. We are not a lender and do not give regulated financial advice. Any offers from lenders will be subject to their credit assessment and terms, and you should review these carefully and seek independent legal advice where appropriate.
Frequently asked questions
Will offering equipment as security reduce interest rates? Yes, using financed equipment or other tangible business assets as security often lowers the interest rate compared to unsecured borrowing. Lenders view secured lending as lower risk, allowing more competitive pricing and larger facility sizes.
Can a personal guarantee be removed later? Sometimes. Lenders may agree to release guarantees after a period of on‑time payments, improved financial metrics, or replacement with alternative security. Negotiate these terms up front where possible.
How do I limit my exposure under a guarantee? Ask for a capped guarantee, time-limited guarantee, or a guarantee limited to specific events. Seek legal advice to ensure wording is clear and acceptable before signing.
Who should I contact if I’m unsure about terms? Contact a specialist commercial finance broker or solicitor experienced in corporate lending and guarantees. You can also submit a Quick Quote with Best Business Loans to be introduced to relevant lenders and brokers quickly.
Ready to compare sustainability finance options? Start with a Quick Quote and get matched with lenders and brokers who can evaluate whether your project will need security or a personal guarantee. Get your free Quick Quote now — no obligation, quick eligibility checks, and practical next steps tailored to your business.