An unsecured business loan doesn’t require your business to offer collateral or security to a lender. This makes it a much more flexible method of funding for small business who are still growing or don’t own any tangible assets.
Unsecured business loans suit many types of modern business. Whether you are a large or small enterprise, you can use a loan for almost any business purpose – from expansion to general cash flow.
Many business banks find it hard to offer unsecured loans to small and medium sized businesses. Fortunately, there are now many more lenders who may be able to help. At Touch we can help find the right fit for your business.
Any company which doesn’t possess many assets might benefit from these loans. If you operate in a sector that doesn’t require significant assets, an unsecured loan may be the answer.
It can be harder for a start-up business to find finance, as most lenders would expect you to have at least a year’s revenue. This gives them confidence that you are able to repay the loan. Although unsecured loans are available for businesses with a poor credit score, they may be expensive.
There is usually a minimum turnover requirement of £75,000.
What can you use an unsecured business loan for?
Unsecured business loans can typically be used for most agreed business purposes. Common uses include:
Advantages and disadvantages of an unsecured business loan
The key benefit of an unsecured loan over a secured one is that it doesn’t require you to put up assets as collateral. Before rushing in to applying for a business loan, consider the other side of the coin as well.
No valuations and fast lender decision making means that small to large sized businesses can rapidly access funding and immediately put it to use.
Depending on your business needs, the term to repay the loan can vary from a few months to several years, so you can manage your budget and plan accordingly. Most lenders also have no penalties for early repayments – only pay interest up until the point you pay back the amount.
There are many unsecured business loan lenders to choose from as well as different offers depending on what you’re looking for – something Touch can help you sift through.
Because there’s no collateral, the lender is facing a higher risk when loaning the money. If you have a good credit rating, this is less of a problem for you but still something to be aware of.
For the same reasons as above, the size of your loan repayments may be larger than with a secured loan wherein the lender has reduced risk thanks to collateral.
Most unsecured loan providers will require all the business directors to sign a personal guarantee. We recommend you take professional advice when doing so.
Unlike with a secured business loan, there is less investigation into the value of assets used as security. However, you may be asked by most lenders to provide a personal guarantee, as this lowers the risk for the lender. Note that usually, all company directors will have to sign personal guarantees.
While this might seem like a big commitment, this does help the lender mitigate risk. We do recommend always seeking independent professional advice before signing a personal guarantee.
Loan interest rates and costs
Initial costs for this type of business finance may be low, but the overall cost could be more than for a secured loan. Typically, interest rates will be higher for unsecured loans than for those secured against property or assets. Most lenders will not charge you for early repayment, so if you are able to settle-up early, savings can be made.
With many lenders, the cost of finance will be partly dependent on your credit score – either as a business or your personal credit score as a director. Note that Touch Financial will not run a credit check on you or your business but lenders may do so (with your permission).
Unsecured loans can have varying terms depending on your requirements. They typically run for a few months to three years.
Compare business loans
The attraction of an unsecured business loan is undoubtedly the lack of collateral required. But if you do have assets and have spent valuable time acquiring them, it may be worth putting them to use in order to gain access to more business funding with a secured loan.
Compare and consider your options for loans by using our online form to arrange a quick call back from one of our consultants and find the most suitable funding for your business.
Unsecured loan application process
Each lender will have a slightly different application process. Typically, you will be expected to have some documents to hand, such as recent bank statements and accounts. These will help the lenders understand more about your trading history and general financial position. Our team at Touch will work with you to understand which are the best lenders to approach for your circumstances. We’ll also help get your application processed. Our service to you is free.
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