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An unsecured business loan is a type of finance that allows a business to acquire funds up to $600,000 without providing collateral. The increased risk to the lender from lack of security is often reflected by shorter terms and higher interest rates compared to longer-term secured business loans.
These types of unsecured finance loans are supported by the current cash flow of a business. They work in a similar way to a secured business loan, with the main difference being that they do not require collateral (also known as “security”) from the borrower.
Borrowers can access cash without risking their personal or business assets, while lenders will often charge higher interest rates that reflect this increased risk.
If you qualify for an unsecured business loan with a lender, you can use the finance for anything related to your business.
You'll also want 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 Prospa, 33 per cent of businesses make daily repayments, and the remaining 67 per cent opt for weekly repayments.
As there is no collateral on an unsecured business loan, they can be used by small businesses without any valuable assets to offer as security.
In fact, 38 per cent of borrowers own a business operating for less than three years, according to a report by Australian lender, Prospa.
They also allow faster access to cash than some other forms of finance, so are often used by established businesses who need to take advantage of their faster approval process over traditional business loans — an additional 38 per cent have been operating between 4 - 7 years (26%) and 8 - 10 years (12%).
Depending on your risk profile and your capacity to service your repayments, you may be able to borrow between $5,000 and $600,000.
As a rule of thumb, most lenders will consider a 12-month unsecured business loan equal to your monthly earnings. If your business earns $30,000 per month, you can generally borrow $30,000 on a 12-month term.
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If this is the case, you’ll need to provide additional documentation to the lender so they can assess your application. Here’s what you may need to provide to a lender when applying.
If you are making an application for more than $100,000, you can speak to your bank or a lender directly to discuss your financial circumstances and need for finance.
If you are applying for less than $100,000, you can generally apply online with a number of different specialist business loan lenders, including those who provide loans designed specifically for small businesses.
Lenders will assess an application based on the monthly revenue of the business, its intended use for the loan, how the loan will benefit future business revenue, and more.
You can use the Money.com.au smart form to compare loan offers from real Australian lenders, and apply directly for an unsecured business loan online with a number of specialist lenders.
These lenders offer the fastest approval speed in return for charging higher interest rates than a bank.
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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:
No, but this will vary from lender to lender. A deposit is essentially a type of up-front collateral, and while a deposit won’t often be required by a lender, it can help reduce your monthly repayments and potentially assist 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.
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 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 on an 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, but are simply tied to your legal obligation to repay an agreed amount. There are several types of personal guarantees:
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.