Benefits of unsecured business loans
Key benefits of unsecured finance solutions include:
- No business assets required as security for the facility
- Quick access to funds
- Flexible repayment terms
- Loans available for a wide range of business purposes
- Typically less paperwork required than secured facilities
Unsecured business loans don’t require security over business assets such as inventory or commercial property, though they are typically supported by personal guarantees from the business’ owners.
You can typically get the funds you need much faster than a secured loan or some other lending solutions. This can be especially helpful if you need to cover unexpected expenses or take advantage of a time-sensitive business opportunity.
There are a wide range of facilities available, each with their own benefits. Some funders may permit you to make overpayments and others may offer an initial interest-only period. You may be able to choose a repayment period that works for you, and you may also have the option to make early repayments without penalty.
What is an unsecured business loan?
An unsecured business loan is a type of loan that doesn’t require you to put up any business collateral to secure the funds. Instead, the lender will evaluate your creditworthiness and other factors to determine whether you’re eligible for the loan, with a heavier focus on affordability.
As businesses need to demonstrate affordability there tends to be more options for businesses after they have filed their first year or two of accounts, though there are some options for younger businesses.
The amount you can borrow will depend on your business’ credit history, financial affordability and revenue levels, as well as the credit strength of the business’ owners. £500,000 is generally the maximum level of finance available to a business on an unsecured facility.
Interest rates will vary depending on your unique credit and affordability circumstances. Typically the interest rate on an unsecured business loan will be higher than a secured business loan as there is more risk to a funder where they do not have security to protect them.
How does unsecured business finance work?
An unsecured business finance lender will typically assess a facility as follows:
- Loan amount: The lender will provide a loan of to a maximum level depending on your business’ turnover and affordability – how much the funder believes you can afford to repay per month.
- Loan term: Lots of unsecured loan funders will offer facilities up to 12 months, though some will offer facilities up to 6 years. The term will often be agreed based on what you ask for, though sometimes a funder may shorten this to protect their long-term risk, or lengthen it to reduce repayments and make the facility more affordable for you.
- Repayment: Typically repayments are made by a fixed monthly direct debit and most facilities have a fixed interest rate. Some funders will permit you to make overpayments and/or settle in full flexibly, often with benefits from settling early.
