Should Your Business Consider Unsecured Lending And Why?

Should Your Business Consider Unsecured Lending

Both banks and non-banking financial institutions offer assistance to entrepreneurs. Most commonly in the form of business loans, albeit on different terms and conditions. However, there are many businesses with intangible assets that need finance quickly to make their venture grow. In such a scenario, unsecured lending, without offering any security, might just be the answer to augment the company's cash flow or for purchasing fresh stocks or assets.

In the world of alternative finance, unsecured business lending comes in very handy for businesses that would prefer not to offer any security. Or, for a startup that's growing fast and needs funds urgently. Since these days, more and more companies are operating with limited assets, like a consultancy running from a rented office with just a few computers, this is where unsecured loans make their presence felt.

How to get an unsecured business loan?

For most businesses around the world, one of the biggest hurdles is generating enough cash flow to boost growth. This is where non-bank lenders come in. The amount one can borrow through an unsecured loan depends on the credit rating of the company and monthly turnover. If you are looking for financial aid for your small business, there are a number of private lending agencies from where you can access funds fast. Especially since everyone knows that banks have a lengthy approval process and makes securing funds from them difficult.

An unsecured business lending in Australia report says that over two million SMEs in the country comprises 99% of all the enterprises in Australia. However, a majority of them are not able to secure finance from the banks due to either strict lending norms or a cumbersome loan application process. The best course of action for securing an unsecured loan for them should be to find a reliable lender, seek clarity on the payment terms and check the approval rate.

Some of the best small business loan lenders that offer unsecured loans and scored well over others in the market in quick application processing are:

  • LENDIO: (Best overall)

Fully online systems.
Instant application response.
Personalized guidance and expertise.

  • FUNDBOX:(Best for low credit)

Automated application.
Low approval requirements.
Quick funding.

  • FUNDERA:( Best for micro-loans)

Access to multiple loans and lenders.
Personal loans up to $50,000
Term loans up to $600,000
Credit card recommendations.

  • BLUE VINE:(Best for large loans)

Simple and quick process.
Low credit score payments.
Large loans are available.
Invoice financing up to $5m.

  • KABBAGE:(Co.nvenience)

Access through PayPal
Offers only lines of credit.
Fast, accessible working capital.

When and why to take an unsecured business loan.

Whenever you opt for a loan, you normally provide something to the lender in the form of collateral. However, this is not the case with an unsecured loan. Since this loan involves a high element of risk for the lender, it is natural that the lender would include certain terms and conditions to the borrower to offset that risk. To understand why you should secure a high-interest loan, we must first understand the type of loan you may require. There are basically three types of unsecured loans on offer from financial institutions:

  • Revolving loan: This loan has a credit limit that the borrower can avail of in a particular time period. Funds can be withdrawn any number of times, within the specified time frame and prescribed limits without having to pay any fixed installments.
  • Term loan: In this case, the borrower gets the amount in a lump sum for a certain period which has to be repaid in rigid installments by the end of the term.
  • Consolidation loan: This loan is availed to pay off any existing Ioan or unsecured loan.

Benefits of taking an unsecured loan.

  • Simple processing and disposal: Providing you are eligible, the application process and disbursal of an unsecured loan is far more simple than a secured loan. Moreover, the loan amount gets disbursed within a few days or even earlier.
  • No collateral required: This is easily the main advantage of taking an unsecured loan, despite the high rate of interest. Even if you fail to repay your debt on time, there is no risk whatsoever of losing your property or any other valuable possession.
  • Flexibility: While secured loans are given for a fixed purpose, unsecured loans can be utilized for any purpose the borrower wishes.

Disadvantages of unsecured loans

  • Demanding eligibility criteria: As unsecured lending is given without collateral, often lenders keep strict eligibility criteria for the borrowers. Apart from an excellent credit score, the borrower should be free from other major debts.
  • Sanctioned amount is small:  To limit losses in case of default, financial institutions limit the amount to be given to a manageable sum over a secure loans.
  • High-interest rates: Interest rates are much higher than secured loans because of the element of risk involved.
  • Short tenure: Unsecured loans have usually to be repaid within five years, which equates to a higher monthly installment.

High fees and penalties: With processing fees between 1-6% and high penalties for late payment, negotiate all options before securing the loan.

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