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To find out more about how unsecured business loans work and how to find the best one for your business, see below for our comprehensive guide.
If your business has been affected by COVID-19 there are a number of options available to help you financially:
The banks are offering various relief measures to help small businesses during this time of uncertainty. This includes measures such as payment deferrals, fee and interest waivers and discounted rates on business loans.
The government is employing its economic response plan including: deferrals, and waivers to help businesses retain staff during this time. The government also has their own grants schemes, tax relief, and interest-free business loans designed to provide cashflow assistance to SMEs.
An unsecured business loan is a form of business finance that does not require asset security, such as commercial or personal property, as collateral.
The eligibility for these loans is based on your business’s capacity to repay the loan, which is determined by examining monthly sales and cash flow.
While it used to be the case that businesses needed security to be eligible for a business loan, this is no longer a hard-and-fast rule. Secured business loans are loans in which businesses use property to guarantee the loan. Using an asset as guarantee means that if the business defaults on repayments, the lender can repossess the property to cover the costs of the loan.
The small business loans market has changed with the rise of fintech lenders. These lenders are filling a gap in the market left by banks as fewer business owners were able to offer security and were, therefore, unable to access business funding. In response to this, banks have now started to offer their own unsecured business loan products, with some targeted at small or innovative businesses.
Today there are more options than ever when it comes to unsecured business loans. With more and more non-bank lenders entering the market, competition is fierce. And because a lot of these lenders are based entirely online, they have less overheads and are able to offer potentially lower rates than the bigger banks.
This being said, secured business loans do tend to have lower rates than unsecured loans because they pose less risk to the lender.
Lenders offer varying amounts for unsecured business loans but they can range from $1,000 to $1,000,000. You may find that the amount you’re eligible for depends on your monthly turnover. For example, if you make $50,000 revenue per month you may be eligible to borrow that amount.
There are a number of benefits and drawbacks to getting an unsecured loan.
Eligibility criteria differ between lenders but you will usually need to meet the following:
Many lenders have strict requirements regarding the amount of time a business needs to have been operating. However, people looking to start a new business can also access funding without the need to offer security. Find out more about start-up loans in our guide.
Unsecured business loans come with a range of features that you can look at to compare your options. Make sure you check the following:
Lenders have set minimum and maximum amounts that they will lend, so make sure the amount you need is on offer from the lender.
Many lenders can now get your approved funds to you within 24 hours, but other lenders may take longer. If you need your funds by a certain time, make sure the lender is able to accommodate this.
Comparing interest rates is a good way to determine how competitive a loan is. However, remember that fees may also apply, so check this when you’re comparing. The best way to get a more accurate representation of the interest rate is by checking the comparison rates on our website, as these take into account additional fees.
How long is the loan term? The length of the term will affect how high your repayments are. You can use a business loan calculator to see what your repayments are likely to be and when you will be able to repay the loan.
Up-front and ongoing fees such as application fees and monthly fees may apply to your business loan. You may also need to pay a loan documentation fee or direct debit fee. Comparing the level of fees you need to pay can help you determine its competitiveness.
A comparison rate is a calculated interest rate that takes into account any mandatory fees attached to the loan (this usually won’t include potential late payment and default fees). These fees are added to the cost of the advertised interest rate and then calculated as a percentage.
Comparison rates give a more accurate representation of what you can expect to pay for a financial product. However, lenders can also base the rate they offer borrowers on factors such as credit rating, employment, income and financial history. So, while comparison rates are more accurate than advertised rates, they are not necessarily definitive of a loan product.
The 2 main things to consider are the cost of the loan and whether your business can afford it. Consider your current profits and cash flow and find out how long the loan term will be. By incorporating the repayments into your budget you can see whether you are able to afford it.
Start by comparing your unsecured business loan options on this page using the comparison table. Once you’ve compared the rates and fees, click “Go to site” on your chosen loan. The application process differs between lenders, but you’ll generally need the following to apply:
You don’t have to have an asset to use as security to apply for a business loan. While unsecured business loans may come with higher fees because they poses a greater risk to the lender, it’s still possible to get the financing you’re looking for. Make sure you understand the pros and cons and compare unsecured loan offers carefully before selecting the right loan for your business.
If you want to learn more about all-things business loans, check out our comprehensive guide to business loans.
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