How much funding do you need for your business?
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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.
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. 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
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.
You can use the business loan calculator to estimate various repayment amounts and compare offers.
Some banks will offer this type of business finance, including 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:
Loan interest rates and terms
Minimum and maximum loan amounts
A personal guarantee by the director of the company
You can also apply for an unsecured business loan online with a number of specialist lenders. These lenders offer the fastest approval speed in return for charging higher rates of interest.
Access to cash for your business today could allow you to make crucial business decisions and potentially repay the loan amount much earlier than the end of the established term.
You can see how each business finance lender compares in our reviews below:
If you’d like to see a full list of business loan lenders in Australia and learn how to compare various offers, you can visit our Lender Reviews section.
To apply, you’ll first want to compare lenders online to get the best rate available.
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%).
Have been trading for at least 12 months; and
Have an ABN (Australian Business Number); and
Are registered for GST
Are self-employed
Are a sole trader
Have been trading for between 6 - 12 months.
If the business is relatively new or you are self-employed, the director of the business may be asked to provide a personal guarantee on the loan.
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 are some tips to improve your chances of getting
approved. Here’s what you may need to provide to a lender when applying:
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
All the documentation provided if borrowing less than $100,000; and
Financial records (provided by your accountant)
Profit and Loss Statements
Balance Sheet
Financial records (provided by your accountant)
Provided you can supply the appropriate documents to your lender, have a reasonable company turnover, and good credit history, you’ll likely be approved for your application.
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.
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:
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
Financial records (provided by your accountant)
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
Hire new staff
Train your staff in new techniques or best practices
Develop and implement a new marketing strategy
Establish an online presence to attract new customers
Rebrand your business
Renovate or upgrade your premises
If you are buying a business vehicle, a chattel mortgage will often provide better interest rates than other forms of business vehicle finance.
Typically, an unsecured loan for business use will be offered for a term of 3 - 18 months, though some lenders will offer terms anywhere between one month and three years.
Make sure you are aware of all the costs associated with the loan – including any extra fees such as set-up costs, transaction charges and early repayment penalties.
You may see unsecured business loans advertised with three different types of interest rates:
APR (Annual Percentage Rate)
Simple Interest Rate
Factor Rate
Often, these can appear extremely low or beneficial to lenders, which is why it’s important to understand
how each rate works so you can properly compare loan offers.
We have a separate
guide that covers everything you need to know about business loan interest rates.
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
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
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.
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
If your business cannot provide any assets as collateral, it may mean that your personal assets, such as your home, are at risk if your business defaults on its obligations.
