Finance options - unsecured loans
Unsecured business loans
Use unsecured business loans to raise capital, without the need to use your assets as collateral.
Use unsecured business loans to raise capital, without the need to use your assets as collateral.
With an unsecured business loan, businesses do not require assets as collateral Since these loans are not secured by physical assets, the decision to lend will be based on the borrower's creditworthiness and financial health. Lenders assess various factors including your business credit score, revenue, cash flow, credit and overall financial stability.
Unsecured loans are flexible funds that can be used for multiple purposes such as working capital, inventory purchases, expansion, or new equipment investments. It’s important to note that, although no collateral is required, lenders may still request a personal guarantee from the business owner.
An unsecured loan works by providing your business with fast access to capital, usually in an upfront sum. The process is usually quite fast and applications can be fully completed online, meaning you could get the cash in your bank account in as little as 48 hours.
Once you receive the funds, you'll then repay it back over an agreed upon period. This is usually a fixed amount each month, although this can vary depending on the type of unsecured loan you opt for. You may also be able to repay the loan early if you choose, and this could come with an extra fee.
Business loans fall into two categories: secured and unsecured. Secured loans require collateral—valuable assets like property or equipment—while unsecured business loans don’t need collateral, instead relying on your business's financial health and creditworthiness. Unsecured loans are generally faster to access but come with higher interest rates and shorter repayment terms, making them riskier for lenders but more flexible for businesses in need of quick financing.
Unsecured loans are ideal for small businesses that lack significant assets, such as property, or equipment to use as security for the loan. Here are three different types of unsecured loans that can benefit small businesses in different situations:
| Advantages | Disadvantages |
|---|---|
| Businesses can get access to capital, without risking their assets. | They can come with higher interest rates, increasing the total repayment amount over time. |
| The approval process for unsecured loans is much faster. | The maximum loan amount for unsecured loans are typically lower than those for secured loans. |
| Unsecured loans typically involve less paperwork, simplifying the application process. | Lenders generally require higher business credit scores for unsecured loans, making it difficult for businesses with poor credit to qualify. |
An unsecured business term loan provides a lump sum of money upfront. This is repaid by the business over a fixed term with regular payments. The length of the terms can vary depending on the business and lender, it can range from a few months to 5 years.
A revolving credit facility gives you access to a predetermined amount of funds that you can draw from as needed. Interest is only charged on the amount you borrow, and you can repay and reuse the funds within the credit limit.
Business credit cards are a type of unsecured business loan. Businesses typically use it to cover everyday expenses. They offer a revolving line of credit, allowing you to make purchases and repay the balance over time.
Merchant cash advances are unsecured business loans that provide a lump sum of cash. Repayment is not fixed but a predefined percentage of your future sales. Lenders typically deduct a fixed percentage from your monthly credit card sales until the advance is repaid.
Whether you're taking on a new project, looking to expand your workforce or simply need a hand covering the day to day running costs of your business, unsecured business loans can help to provide the working capital you need.
To be eligible for an unsecured business loan you'll most likely need:
When considering an unsecured business loan, it's important to understand that interest rates are generally higher compared to secured loans. This increase in rates is due to the absence of collateral. Since the lender takes on more risk by providing funds without tangible security, they offset this risk by charging higher interest.
Defaulting on an unsecured business loan can have serious implications for your business and personal financial health. Initially, the lender will likely contact you to discuss the missed payments and may offer alternative repayment plans. If defaults continue, lenders can escalate the matter to debt collection agencies, which may result in increased pressure through frequent contact and demands for payment. This not only affects your business operations but could potentially harm your credit rating, making it more challenging to secure future financing.
It's more challenging to get an unsecured business loan with bad credit, but some lenders specialise in offering loans to businesses with lower credit scores. Interest rates may be higher, and the loan terms could be less favorable. Find out more about getting a business loan with bad credit.
Yes, using an unsecured business loan to consolidate debt from various sources can help simplify payments and potentially lower interest rates, saving your business money over time.
You can improve your chances by maintaining a strong business credit score, having a solid business plan, demonstrating consistent revenue and cash flow, and showing how you'll use the funds to grow your business.
Unlike secured loans that require an asset or proeprty as collateral, unsecured business loans are approved based on the business' credit score, revenue, cash flow, and other financial factors. They generally have higher interest rates compared to secured loans.
