Unsecured Business Loans

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Unsecured Business Loans
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Key features:

  • Borrow from $5,000 to $600,000

  • Fixed or variable interest rates

  • Repayments to suit your budget

  • Terms from 1 month to 5 years

  • Secured & unsecured options

Who is eligible?

  • Own a business and have an ABN

  • Business is GST-registered

  • Permanent Citizenship or Residency

  • Minimum business-operating time of six months

  • Can provide business bank statements

Learn more about unsecured business loans

What is an unsecured business loan?

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.

If you are approved:

  • A lender will provide you with access to funds

  • You will not have to provide collateral as security on the loan

  • You will have immediate ownership of anything purchased

  • You will make regular repayments to the lender for a fixed period of time

Borrowers can access cash without risking their personal or business assets, while lenders will often charge higher interest rates that reflect this increased risk.

Best ways to use an unsecured business loan

These loans are very popular with:

  • Businesses looking to fund growth — i.e. Expansion, inventory, or renovations

  • Businesses with a stable monthly cash flow needing to access funds quickly

  • Seasonal businesses

If you qualify for an unsecured business loan with a lender, you can use the finance for anything related to your business. Here are just some of the ways you could use the funds:

  • Assets and equipment

  • Buy or upgrade your equipment

  • Purchase extra stock in preparation for a busy period

  • Upgrade technology to improve efficiency, upgrade payment options or enhance your customer service.

  • Business continuity and security

  • Cover regular expenses such as tax, lease costs and insurance, where there is a timing issue between income and expenditure

  • Provide a working capital fall-back in case of income fluctuations or unexpected costs

  • Staff training and business expansion

  • Hire new staff

  • Business marketing

  • Develop and implement a new marketing strategy

  • Establish an online presence to attract new customers

  • Business or office fit-outs

  • Rebrand your business

  • Renovate or upgrade your premises

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.

Unsecured business loans for SMEs

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.

Unsecured business loan lending limits

Minimum Amount
Maximum amount
$5,000
$600,000

How to qualify and apply

Qualifying is relatively simple. Most lenders will be able to provide options if you:

  • Have been trading for at least 12 months; and

  • Have an ABN (Australian Business Number); and

  • Are registered for GST.

If you don’t meet the above criteria, you can still get approved if you:

  • Are self-employed

  • Are a sole trader

  • Have been trading for between 6 - 12 months.

There are two main types of applications, which will depend on the amount you wish to borrow.

If you are borrowing less than $100,000 the approval process will be fairly simple. If you wish to borrow more than $100,000, your lender will require additional documentation to assess your application.

If this is the case, you’ll need to provide additional documentation to the lender so they can better assess your application.

Here’s what you may need to provide to a lender when applying:

If you are borrowing less than $100,000:

  • Proof of identity

  • An ABN and GST registration

  • An acceptable credit rating — the lender will ask to conduct a credit check

  • Business bank statements

  • Trust Deed if the business is held in a trust

  • Australian Tax Office (ATO) Portal access.

If you are borrowing more than $100,000:

  • All the documentation provided if borrowing less than $100,000; and

  • Financial records (provided by your accountant)

  • Profit and Loss Statements

  • Balance Sheet

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.

Each lender will have different approval criteria, such as:

  • Risk assessments

  • Minimum credit rating

  • Minimum and maximum loan amounts

  • A personal guarantee by the director of the company

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.

Summary icon

Summary

Unsecured business loans in Australia offer fast access to cash without requiring the borrower to put down an asset as security.

In summary, an unsecured business loan:

  • Gives a borrower access to cash

  • Does not require security or collateral

  • Will often have higher interest rates and fees

  • May be advertised with different types of interest

  • May require a personal guarantee from the business director

How much do you need for your business?

Here are the most popular questions people are asking about unsecured business loans:

What type of fees can I expect to pay?

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.

Will I need to put down a deposit?

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.

Can I get an unsecured business loan if I have bad credit?

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.

Can I repay my loan early?

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.

What is the typical interest rate I can expect to pay on an unsecured business loan?

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.

What is collateral on an unsecured business loan?

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

  • Your vehicle

  • Your personal savings

  • Business inventory

What is a personal guarantee for an unsecured business loan?

Even if you meet individual lender criteria, many lenders may ask you to provide a personal guarantee for an unsecured business loan.

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:

  • An unlimited personal guarantee is a promise to cover the entire loan cost should the business be unable to pay the loan. This is the riskiest option for borrowers and the least risky for lenders.

  • A limited personal guarantee involves the lender setting a figure of how much you’d owe in the event of a default or business failure.

  • A several guarantee is similar to a limited personal guarantee, where a number of business owners offer personal guarantees for a fixed percentage of the loan amount.

  • A joint and several guarantee involves each guarantor responsible for paying off the full amount of the loan should the others be financially incapable

Personal Guarantee Risk Comparison

TYPE OF GUARANTEE
GUARANTORS
RISK TO BORROWER
LOAN AMOUNT GUARANTEED
Unlimited personal guarantee
One
Highest
Full
Limited personal guarantee
One
High
Set amount by the lender
Several guarantee
Two or more
Lowest
Fixed percentage
Joint and several guarantee
Two or more
Low
Potentially the full amount