Unsecured Business Loans: What You Should Know
When it comes to running a company, business owners prioritise keeping the costs low, by maximising the benefits and attenuating the risk. On that note, the main reason why many entrepreneurs prefer unsecured business loans to their secured counterparts is that they don’t want to risk losing valuable assets.
How Do Unsecured Business Loans Work?
A while ago, in order for a business to obtain financing, it had to provide security. Nevertheless, this is no longer an all-time rule. You may have access to unsecured business loans through non-traditional lenders and, in some cases, banks.
This type of financing doesn’t oblige you to offer a guarantee, and it is given depending on the firm’s capacity of making repayments. That is, for the most part, determined by gauging monthly sales and cash flow.
Measure How Much You Can Borrow
The amount of money provided by lenders in the case of unsecured business loans fluctuates. Typically, though, the sum ranges from $1,000 to 1,000,000. Simultaneously, your eligibility will be established by analysing your monthly turnover. For instance, considering that your firm’s monthly revenue is $50,000, you might qualify to borrow that sum.
What is the Eligibility Criteria?
Each lender has distinguishing eligibility criteria. However, generally speaking, you’ll be required to meet the conditions presented below:
- Time in operation. Depending on the sum of money you intend to borrow, your business should have been operating for a given amount of time.
- Business turnover. You should check the lender’s minimum turnover requirement.
- Director’s credit history. You could be asked to provide both your business and personal credit files.
- Business structure. The firm should be registered in Australia. Nonetheless, some lenders will only lend to partnerships, sole traders or similar business structures. It all depends on the lender you’re applying with.
- Business premises. You might be required to have leased a particular location for a defined timeframe.
How to Compare Different Unsecured Business Loans
- Turnaround time. If you are in need of urgent financing, you’ll be pleased to find out that some lenders may approve your loan application in as little as 24 hours. At the same time, though, the same process could take infinitely longer with other lenders. It’s up to you to pick a lender that will accommodate your needs if quick turnaround time is a priority for your company.
- Loan amount. Each lender and bank has pre-stabilised minimum and maximum borrowing amounts. You should establish the amount you need, and determine if the lender is willing to provide you the sum you require.
- Interest rate. By comparing interest rates you can get a clear insight into the competitiveness of the loan products you’re reviewing. Nevertheless, although a low interest rate might seem tempting, this shouldn’t be your only preoccupation, as there are other elements that affect the overall cost of a loan.
- Repayment period. The length of the loan is just as important as the interest rate. Yet, it is often overlooked and dismissed as being insignificant. Truth be told, the repayment period will influence your monthly repayments, and the amount you’ll pay in interest fees, over the course of time, as well.
- You should also note that your business loan may include ongoing, up-front, application and monthly fees. Alternatively, you might be required to pay for a direct debit fee or a loan documentation fee. Factoring in this aspect will aid you to establish the competitiveness of your loan product.
What Else Should You Bear in Mind?
Before applying for unsecured business loans, you should gauge the overall cost of the loan. Additionally, we advise you to ensure that your firm can afford to make repayments.
In this respect, the next step is gauging your current profits and cash flow. Try to anticipate how the cash flow is due to evolve over the course of the loan. Another piece of advice would be incorporating the repayment amount into your budget, and establish how it is due to change your company’s financial situation.
Why Don’t I Need to Provide Security?
The primary reason why companies may now benefit from unsecured business loans is due to the development of the borrowing market. To be more precise, the rise of new, online lenders aims at addressing the needs of companies who aren’t in the position to provide security in exchange for getting financing.
Nevertheless, you should be doubly wary when it comes to choosing your lender. While there are numerous reputable, licenced lenders you can choose from, there are various scammers, as well. Researching well beforehand will help you distinguish between the two categories.
The Bottom Line
Investing in your business is mandatory if you want it to grow and become more competitive in the marketplace. And unsecured business loans could assist you in achieving this goal. If you’re in need of financing for your business, you should consider Business Loans; we can help you by offering the financing options that meet your needs!