Compare Unsecured Business Loans

What is an unsecured business loan?

An unsecured business loan is a loan that doesn’t need any assets or property as security; it’s based on the health of the business’s cash flow and performance.

These loans often have higher interest rates and shorter repayment times.

What’s the difference between an unsecured and secured business loan?

When it comes to unsecured and secured business loans, there are several differences to consider:

Unsecured Loan

• You don’t need to provide assets, like equipment or property, as collateral.
• Interest rates are typically higher to compensate for the lender’s increased risk.
• You can borrow less money compared to secured loans.
• Approval may be quicker as there’s no need to assess any assets.
• There’s less risk of losing assets, as none are backing the loan.

Secured Loan

• You must provide an asset as collateral, such as property or equipment.
• Interest rates are generally lower as the collateral reduces the lender’s risk.
• You can typically borrow larger amounts compared to unsecured loans.
• Approval can take longer because the lender needs to assess the asset value.
• There’s a risk of losing the asset if you fail to repay the loan.

How do you know if an unsecured or secured business loan is your best choice?

Unsecured loans can be better suited to businesses seeking quick, flexible financing without risking assets, while secured loans better suit businesses with substantial assets who want a larger loan with a lower interest rate.

What can I use an unsecured business loan for?

The beauty of an unsecured business loan is that it’s very flexible. You’re not limited to using the funds for a specific purpose like you might be with other types of loans.

Here are a few ways you could potentially utilise an unsecured business loan:

Business expansion: Whether you plan to open a new location, launch a new product line, or expand into new markets, an unsecured loan may provide the necessary capital.

Cash flow management: Cash flow can be unpredictable, especially in seasonal businesses. An unsecured loan may help manage cash flow during slow periods, ensuring business operations continue smoothly.

Buy equipment: From upgrading computer systems to purchasing new machinery, an unsecured loan can facilitate the acquisition of necessary equipment.

Inventory acquisition: Finance may allow a business to purchase inventory ahead of a busy period.

Launch a marketing campaign: An effective marketing campaign can significantly boost your business. Use an unsecured loan to fund a new website, digital marketing efforts, or traditional advertising campaigns.

Cover emergency expenses: Unforeseen situations like sudden repairs or the need to replace broken equipment can disrupt your business. An unsecured loan can help cover these unexpected costs, keeping your business running.

The flexibility of an unsecured business loan means you can use it as you see fit to grow and sustain your business. However, it’s crucial to have a clear plan for using the money to ensure it supports your business’s overall financial health and growth.

Pros and cons of an unsecured business loan

Let’s guide you through weighing up the advantages and disadvantages of an unsecured loan.

Pros of Unsecured Business Loans

Faster approval: There’s no need for collateral evaluation, so the approval process is usually quicker. Some unsecured business loans can even be approved on the same day as the application is made.

No collateral needed: You won’t risk losing valuable assets if you can’t repay the loan.

Versatility in how you use the loan: There are few restrictions on how you can use the loan — from purchasing equipment to marketing or hiring more staff.

Flexible repayment terms: You can choose repayment terms that work with your business’s cash flow, which gives you more control over your budget.

Cons of Unsecured Business Loans

Generally cost more: Due to the higher risk for the lender, unsecured loans usually come with higher interest rates and fees than a secured option.

Lower finance amounts: The amount you can borrow with an unsecured loan is usually smaller than a secured loan, and the term may be shorter too. That said, some loan providers offer up to $2,000,000 depending on your business’s monthly turnover.

What Interest rate do you pay for unsecured business loans?

You may be offered the choice between a fixed or floating interest rate on your business loan. A fixed interest rate stays the same for the entire term, which gives you certainty about your monthly repayments, making budgeting much simpler. While a floating interest rate changes according to market conditions.

The lender will decide the interest rate on various factors, including your business’s cash flow, the length of time your business has been operational, and how you plan to use borrowed funds.

Unsecured business loan terms

Loan terms are usually shorter than a secured finance option and can range from 3 months to 3 years or more, depending on the lender.

Eligibility for an unsecured business loan

While specific eligibility criteria vary between lenders, generally, a business should:

Demonstrate sufficient cash flow: Your business must generate enough revenue to service the loan. Loan providers may have a minimum monthly turnover your business must meet to qualify for the loan.

Have been operating for a certain amount of time: Most lenders prefer businesses with a proven track record, typically a minimum of 1-2 years, but some offer loans to newer businesses.

Meet certain annual turnover requirements: Different lenders have different thresholds, but all will need to see if your business is profitable.

What happens if you fail to make repayments?

Failing to repay an unsecured loan can damage your creditworthiness, and lenders may pursue legal avenues to recover the unpaid debt.

Even though an asset isn’t directly tied to the loan as security, the event of non-payment may still result in the forced sale of assets which can impact operations and, in the worst-case scenario, business closure. Keeping on top of repayments is a simple way to prevent this from happening.

How to compare and choose the right loan for your business

When choosing a business loan, consider the following factors:

Interest rate: Rates for unsecured loans can vary widely. Securing a low interest rate will reduce the overall cost of the loan.

Loan fees: The interest rate isn’t the only fee to consider. Think about the other costs associated with the loan, too, like establishment fees, monthly account fees, and late payment fees.

Loan amount: Make a careful calculation of how much you need. Only borrow what is necessary.

Loan term: What term length best suits your ability to make the repayments? Remember, shorter terms mean larger monthly repayments but lower total interest paid.

Loan features: Look for features that benefit your business, such as the option to make extra repayments.

Eligibility requirements: Make sure your business meets the lender’s eligibility requirements before applying. These criteria are usually listed clearly on the website.