At first glance, unsecured business loans can appear intimidating, complicated and even unreliable. With little coverage on the type of loan, we’ve created this overview to answer any queries you might have regarding unsecured business loans and disparage any reservations that are often associated with the loan type. Here’s a beginners overview of unsecured business loans.
What Is An Unsecured Business Loan?
An unsecured business loan is a loan that doesn’t require any personal or business assets as a form of collateral. Instead, the loan’s ‘security’ is based upon a business’s financial history and prospective cash flow forecast, using this information, the lender then deems whether a business qualifies for the loan.
This is different from the traditional loan which uses assets usually in the form of personal property as its security, which if the loan is not repaid, will subsequently be seized as an alternative to payment.
Are There Any Risks To An Unsecured Business Loan?
The increased risk actually relates to the lender more than the business which is applying for the loan, as they have no way of seizing any alternate collateral should the loan not be paid.
This increased risk for the lender, however, is reflected in an unsecured business loan’s interest rate, which is substantially higher than a secured loan, meaning should you fail to pay instalments on time, the loan will increase.
What Types Of Businesses Use Unsecured Business Loans?
Any business can use an unsecured business loan, provided of course, that they can supply evidence of a stable financial model, in the form of a predicted annual turnover and a detailed credit report.
This should include a thorough cash flow analysis displaying that the business is more than capable of paying regular monthly instalments amounting to the total amount of the loan, as well as a series of credit statements illustrating the company’s ability to pay off debts or loans in the past.
This can apply to a business of any size, with many lenders in the market offering unsecured loans worth upwards of £1,000,000.
How You Can Find The Best Unsecured Business Loan Provider For You?
There are plenty of unsecured business loan comparison sites which can help you find the best one for your business.
All you have to do is simply fill out an online form with your business’s details and credentials, and within minutes find out what unsecured loans your company is eligible for.
What Are The Pros Of Unsecured Business Loans?
The first pro is the most obvious, there is no risk of losing existing assets belonging to either the business or the business director, meaning personal and commercial property are safe from being seized.
Also because the lender won’t have to document the assets they intend on using for the loan, (a very lengthy process) an unsecured business loan is often authorised quicker than its counterparts.
What Are The Cons Of Unsecured Business Loans?
The main cons that surround unsecured business loans are as a direct result of the increased risk for the lender.
This means that unsecured business loans will often have higher interest rates, and that businesses without evidence of a clean record of credit, will have trouble attaining an unsecured loan.
We hope that this overview of unsecured business loans has helped shed some light on the subject and that in the future you will consider the points above, before applying for an unsecured business loan.