Business Loans

Unsecured Loans For Businesses: What They Are & How Do They Work

 You have probably heard about ‘Unsecured Loans’. Even the major banks are feeling the heat of this competition because unsecured business lending is increasingly becoming a popular choice among small businesses in Australia. But before you ride on the trend, we know there are two things you want to know about unsecured loans for businesses—what they are and how do they work.

From the term itself, we will know that this type of business loan is unsecured, meaning you don’t need a security to avail it. This also means that even if you have already credit facilities in place, you can still be approved since no business asset or property will be required as a collateral.

Unsecured loans work best for businesses that need a quick cashflow fix or as a short-term solution for working capital gaps. Lenders grant you the loan against the future financial growth of your business. They will look into your past transactions, your credit/debit card sales, your account balance after paying responsibilities, etc., to determine if you are worthy of the loan.

Advantages Of Such Loans Are:

• It’s fast. You can get qualified and get the money in as fast as 2-3 business days.
• No collateral. You will not put your business or personal assets at risk.
• Credit score is not an issue. You will get qualified based on the strength of your business.
• Flexible payments. Repayments are made based on your profits. If you’re having a slow month, you can make adjustments on profitable business months.

How Does Unsecured Lending Work?

The next big question is how do unsecured business work. In Australia, we have a handful of non-bank lenders who offer these loans. The common concerns of small businesses in getting loans are: 1) they are just starting out, 2) they have a bad credit history, and 3) they don’t have enough property to secure a loan.

If an unsecured business loan doesn’t need security, what do lenders look for? You must be thinking, “No way, there must be a catch!” The simple answer is you are borrowing against the future growth of your business. Lenders are looking for regular cash flow and account deposits to finance your business. Basically, they want to know how much money you are left after paying existing loans, suppliers, bills, etc. to determine if you have the capacity to pay the loan.

In terms of repayments, they are done in regular intervals. This is to reduce the risk on the lender side and also to monitor your behaviour in making repayments. As to how much you can borrow, this largely depends on your monthly turnover. Usually, lenders give 80-90% of your average monthly turnover to make sure that you have some buffer to pay the principal and interest of the loan.

If your business will largely benefit from it, then go for it!


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