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An unsecured business loan is a type of finance that allows a business to borrow funds up to $500,000 without providing collateral (security). The increased risk to the lender from lack of security often means unsecured business loans are offered for shorter terms and with higher interest rates compared to longer-term secured business loans.
Unsecured business loans are often attractive for small businesses owners as they mean being able to access cash without risking your personal or business assets.
Instead of collateral, unsecured finance is supported by the borrower’s reputation and the current cash flow of a business. But otherwise, they work in a similar way to secured business loans like chattel mortgages and business car loans.
Applying for an unsecured business loan is usually faster than secured business finance. You won't need to provide information to the lender about an asset that is being used as security for the loan. Instead, you can simply give the lender access to your business financials to demonstrate you're eligible.
An unsecured business loan can be used for any business purpose. Or you could use the funds to cover multiple costs. For example, multiple purchases as part of the same project or business expansion. With a secured loan, the loan is generally used to purchase a specific asset.
It won't be necessary to use business or specific personal assets (e.g. your family home) to secure the loan. This can reduce risk and means you won't be restricted in what you do with your assets in future (e.g. sell them).
The lowest interest rates on secured business loans in Australia start from around 10.00% p.a.
This is higher than the rates typically available on secured business loans.
Lenders charge higher rates on unsecured business finance because there is no collateral provided by the business for the loan. This increases risk for the lender if for any reason the borrower can't repay the loan.
The interest rate you're offered on an unsecured business loan will be personalised to you based on your application.
Unsecured business loans in Australia offer fast access to cash without requiring the borrower to put down an asset as security. Here’s what’s on offer:
To be eligible for an unsecured business loan you generally need to meet these criteria:
It's a good idea to consider how repayments will align with how you plan to use your funds.
Typically, repayments will be daily or weekly to fit in better with your business cash flow. According to data provided by lender Prospa, 33% of businesses make daily repayments, and the remaining 67% opt for weekly repayments.
If you qualify for an unsecured business loan with a lender, you can use the finance for more or less anything related to your business.
According to Money.com.au business lender data, the most common loan purposes are accessing working capital/smoothing over cash flow (50%); Purchasing stock and inventory (25%) and purchasing equipment (25%).
As there is no collateral required on an unsecured business loan, they can be used by small businesses that don't have valuable assets to offer as security.
This is important as the vast majority (around 98%) of business in Australia are small businesses.
Unsecured business loans also allow faster access to cash than some other forms of finance. This makes them attractive to smaller businesses who want a fast approval process to enable them to move quickly to capitalise on growth opportunities.
Depending on your risk profile and your capacity to service your repayments, you may be able to borrow between $5,000 and $500,000. You can try our business loan calculator to estimate your loan repayments based on different loan amounts.
Lenders generally consider unsecured business loans to be riskier. This means you may not be able to borrow as much as you would with a secured loan.
As a rule of thumb, most lenders will consider a 12-month unsecured business loan equal to your monthly earnings. For example, if your business earns $30,000 per month, you can generally borrow $30,000 on a 12-month term.
Lenders will applications based on the monthly revenue of the business and the intended use for the loan.
In addition, each lender will have its own approval criteria, such as:
The process may also be different depending on the loan amount.
If the unsecured business loan is for less than $100,000, you can generally apply online with specialist business lenders, including those who provide loans designed specifically for small businesses.
The approval process will be fairly simple. You’ll need to provide:
If you can’t provide standard business documents with your application, you could consider a low doc business loan.
If you wish to borrow more than $100,000, your lender will require additional documentation to assess your loan application. That means as well as the documents listed above, you’ll need to provide:
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Unsecured business loans do not require collateral, which is why they are referred to as ‘unsecured’. A secured business loan uses collateral — an asset or something of value owned by the business — as security on the loan.
Generally, if a borrower fails to meet their loan repayments, the lender will sell the collateral to recover any missing funds. Collateral used as security on a loan could include:
Your home A vehicle Your personal savings Business inventory
No, but this will vary from lender to lender. A deposit is essentially a type of up-front collateral, and while a deposit generally won’t be required by a lender, it can help reduce your monthly repayments and potentially assist you in getting a better interest rate.
Yes, you can get an unsecured business loan if you have bad credit. Generally speaking, a lender will be looking to assess the strength of your business, not you personally.
If you need finance for your business, an unsecured loan is just one option.
Other ways of securing funds include:
For large investments in an asset for your business, there are various forms of secured asset finance available.
Yes, most lenders in Australia will allow you to repay an unsecured business loan early. However, it’s important to check with the specific lender to ensure there aren’t any early repayment charges or penalties if you choose to do so.
Interest rates will typically be higher for an unsecured business loan than other forms of business finance. The actual rate applied will depend on the strength of your current business cash flow and ability to repay the loan.
Fees will usually be higher on an unsecured business loan than on a secured loan, as there is a higher risk for the lender. Each lender will have different rates and fees, which is why it’s important to calculate the APR (annual percentage rate), as well as the fees, on a loan offer to see how much you will actually pay.
A personal guarantee is a legal commitment by a person or group to cover any outstanding loan amounts should the borrower default and fail to meet their payments. Personal guarantees are unsecured, which means they aren’t tied to specific assets you own. They represent a legal obligation to repay an agreed amount. There are several types of personal guarantees: