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What is an unsecured business loan?
An unsecured business loan is a type of business finance that allows you to borrow funds without providing any business or personal assets as security (collateral) for the loan. Instead, unsecured finance relies on the trading position of your business — including your trading history, plus current and projected cash flow.
Having no security backing the debt increases the risk to the lender, making it harder for them to recoup losses if you can't repay the loan. As a result, unsecured business finance comes with higher interest rates than secured business loans (which lower the lender’s risk due to collateral). Unsecured business loans also have shorter loan terms.
An unsecured business loan can be a good option for small business owners who need quick access to cash without risking personal or business assets.
Unsecured business loans at a glance
- Borrow anywhere from $5,000 to $500,000+
- Interest rates start from 12% p.a. (for prime business borrowers)
- Choose between a fixed or variable rate
- Loan terms from one month to 5 years
- Simpler approval process since the lender doesn't have to appraise any collateral
- Some lenders charge no establishment or admin fees
- Can be used for any genuine business purpose (e.g. increase working capital, buy assets)
- Available to businesses, sole traders and self-employed individuals
- May require a personal guarantee from a business director
One of the most common reasons businesses look for an unsecured loan is to secure funds to use as working capital. The average amount requested for this purpose is $118,833, according to Money.com.au's analysis of thousands of borrowers who came to us looking for a loan.
How does an unsecured business loan work?
An unsecured business loan is structured similarly to a secured business loan, except the lender doesn’t have to appraise any collateral or register any interest on the Personal Property Securities Register (PPSR) until you pay off the loan.
Aside from that, it's much the same as any business loan. You’ll borrow a lump sum from a lender, which you’ll repay with interest through scheduled repayments over a fixed period (called your loan term). Typically, repayments will be daily or weekly to fit in with your business cash flow, according to online lender Prospa.
Depending on how much you want to borrow, some lenders may require a personal guarantee from a business director. This makes you or any director(s) personally liable for the debt. If your business can’t repay the loan, you’ll have to pay it back.
What are the best interest rates on unsecured business loans?
Interest rates on secured business loans start from around 12-20% p.a. Rates are higher on unsecured business loans to offset the lender’s risk of providing finance without collateral.
The lender will determine your personalised interest rate when you apply for business finance, based on your creditworthiness, including:
- Your trading history, profitability & cash flow
- Your business and personal credit score
You can try our business loan calculator to estimate your loan repayments based on different loan amounts.
Some lenders may display a ‘factor rate’ instead of a traditional annual percentage rate (APR). A factor rate is expressed as a multiple of the loan — for example, 1.15 times the loan balance.
Compare unsecured business loan rates & repayments
Loan amount | $10,000 |
|---|---|
Monthly repayments with 12% p.a. interest rate | $222.44 |
Monthly repayments with 14% p.a. interest rate | $232.68 |
Monthly repayments with 16% p.a. interest rate | $243.18 |
Loan amount | $20,000 |
Monthly repayments with 12% p.a. interest rate | $444.89 |
Monthly repayments with 14% p.a. interest rate | $465.37 |
Monthly repayments with 16% p.a. interest rate | $486.36 |
Loan amount | $30,000 |
Monthly repayments with 12% p.a. interest rate | $667.33 |
Monthly repayments with 14% p.a. interest rate | $698.05 |
Monthly repayments with 16% p.a. interest rate | $729.54 |
Loan amount | $40,000 |
Monthly repayments with 12% p.a. interest rate | $889.78 |
Monthly repayments with 14% p.a. interest rate | $930.73 |
Monthly repayments with 16% p.a. interest rate | $972.72 |
Loan amount | $50,000 |
Monthly repayments with 12% p.a. interest rate | $1,112.22 |
Monthly repayments with 14% p.a. interest rate | $1,163.41 |
Monthly repayments with 16% p.a. interest rate | $1,215.90 |
Loan amount | $60,000 |
Monthly repayments with 12% p.a. interest rate | $1,334.67 |
Monthly repayments with 14% p.a. interest rate | $1,396.10 |
Monthly repayments with 16% p.a. interest rate | $1,459.08 |
Loan amount | $70,000 |
Monthly repayments with 12% p.a. interest rate | $1,557.11 |
Monthly repayments with 14% p.a. interest rate | $1,628.78 |
Monthly repayments with 16% p.a. interest rate | $1,702.26 |
Loan amount | $80,000 |
Monthly repayments with 12% p.a. interest rate | $1,779.56 |
Monthly repayments with 14% p.a. interest rate | $1,861.46 |
Monthly repayments with 16% p.a. interest rate | $1,945.44 |
Loan amount | $90,000 |
Monthly repayments with 12% p.a. interest rate | $2,002.00 |
Monthly repayments with 14% p.a. interest rate | $2,094.14 |
Monthly repayments with 16% p.a. interest rate | $2,188.63 |
Loan amount | $100,000 |
Monthly repayments with 12% p.a. interest rate | $2,224.44 |
Monthly repayments with 14% p.a. interest rate | $2,326.83 |
Monthly repayments with 16% p.a. interest rate | $2,431.81 |
| Loan amount | Monthly repayments with 12% p.a. interest rate | Monthly repayments with 14% p.a. interest rate | Monthly repayments with 16% p.a. interest rate |
|---|---|---|---|
$10,000 | $222.44 | $232.68 | $243.18 |
$20,000 | $444.89 | $465.37 | $486.36 |
$30,000 | $667.33 | $698.05 | $729.54 |
$40,000 | $889.78 | $930.73 | $972.72 |
$50,000 | $1,112.22 | $1,163.41 | $1,215.90 |
$60,000 | $1,334.67 | $1,396.10 | $1,459.08 |
$70,000 | $1,557.11 | $1,628.78 | $1,702.26 |
$80,000 | $1,779.56 | $1,861.46 | $1,945.44 |
$90,000 | $2,002.00 | $2,094.14 | $2,188.63 |
$100,000 | $2,224.44 | $2,326.83 | $2,431.81 |
Who’s eligible for an unsecured business loan?
Generally, the minimum eligibility requirements for an unsecured business loan in Australia include:
- Australian citizenship or permanent residency
- An active ABN or ACN
- Your business must be GST-registered
- At least six to 12 months of trading history
- A minimum annual turnover of $75,000- $100,000 (depending on the lender)
- The ability to provide financials or bank statements
- A good credit score — the minimum business credit score is 475; it's about 500 for company directors.
Being a homeowner can make getting an unsecured business loan easier (or it may be a requirement depending on the lender). It can also mean being able to borrow more. Most Money.com.au business borrowers (55%) are homeowners and on average they request to borrow around 64% more than non-home owners.
Unsecured business loan pros & cons
Pros
- Doesn't require personal or business collateral
- Fewer upfront costs as there’s less paperwork involved & no asset valuation required
- No early payout fees (in most cases)
- Faster application process & you could get funding within one business day in some cases
Cons
- Higher interest rate than a secured business loan
- Stricter eligibility requirements may apply, as lenders will pay particular attention to the integrity of your bank statements
- Limited borrowing amounts compared to secured finance
- May require a personal guarantee from a company director
Other unsecured business finance options
Unsecured business line of credit
A business line of credit gives you access to a specific amount of funds whenever you need (up to your credit limit). You can use part or all of the funds, pay it back and use it again (think of it as an open-ended loan). You’ll only pay interest on the amount you withdraw, not the entire credit limit. Some lenders advertise this is a business overdraft but it's the same thing generally.
Business credit card
You can use a business credit card to access funds up to an agreed limit. There’s usually an interest-free period when no interest is charged on purchases if you pay your closing balance in full each month. You must repay the minimum balance each month to continue accessing that limit.
What can you use an unsecured business loan for?
According to Money borrower data, the most common reasons businesses apply for unsecured financing is to provide working capital/smooth over cash flow. But it can be used for more or less any genuine business purpose, including:
- Cover regular expenses such as lease costs and insurance when there’s a cash flow shortfall
- Upgrade or repair business vehicles or equipment
- Initial rebranding & marketing costs
- Fit out or upgrade business premises
- Hire and train staff for business expansion
- Upgrade technology to improve efficiency (e.g. buy new payment systems)
- Pay business-related debts, including ATO debts
- Buy another business to expand your operation
- Access funds to buy out a business partner
- Additional stock purchasing for the business
Phil Collard, Money.com.au Commercial Finance Expert
Business cashflow remains the main driver behind a lot of funding requirements. As an example, building, trade and construction accounts for a large portion of SMEs in Australia and these businesses are generally required to make upfront payments for materials and supplies on various projects with income not being realised until certain progress/milestones during the build process.
Phil Collard, Money.com.au Commercial Finance Expert
Unsecured business loans for SMEs
Unsecured loans are particularly suited to small businesses who need accessible funding, but lack assets to offer as security for their finance. This is beneficial when:
- You’re scaling your business
- You need quick funding to capitalise on growth opportunities
- There’s a cash flow crunch (especially during the startup phase)
- You want to use shorter loan terms to build or improve your business credit history
The vast majority of businesses in Australia (around 98%) are small businesses and more than 90% of loan requests are made by SMEs, according to Money.com.au data.
How to apply for an unsecured business loan
Lenders will review applications for an unsecured loan based on your business’ monthly revenue and the intended use for the loan. Each lender will have its own approval criteria and the process may be different depending on the loan amount (e.g. a director guarantee may be required).
If you’re borrowing less than $100,000
Proof of identity (e.g. driver’s licence, passport)
Proof of ABN and GST registration
An acceptable credit rating (the lender will conduct a credit check via one of Australia’s main credit bureaus like Equifax, illion or Experian)
Business bank statements
Australian Taxation Office (ATO) Portal access
A trust deed if your business is held in a trust
If you can’t provide standard business documents with your application, you could consider a low doc business loan.
If you’re borrowing more than $100,000
Financial records (provided by your accountant)
Profit and loss statements
Business balance sheets
A director’s guarantee (usually for loan amounts over $100,000 over a minimum 12-month term)
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