Glossary for this page

1. Credit Score:
A numerical expression based on a level analysis of a person’s credit files, representing the creditworthiness of an individual.

2. Personal Guarantee:
A personal promise made by the business owner or director to repay the loan if the business is unable to do so.

3. Cash Flow:
The total amount of money being transferred into and out of a business, especially as affecting liquidity.

4. Loan Term:
The length of time that a borrower agrees to pay back a loan.

5. Interest Rate:
The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

6. Default:
Failure to fulfill the legal obligations or conditions of a loan, such as making timely payments.

7. Debt Service Coverage Ratio (DSCR):
A measure of a company’s ability to repay its debt, calculated as net operating income divided by total debt service.

Types of Unsecured Business Loans

Loan TypeSecuritiesTermsAvg Loan SizeEstimated Interest Rate
Unsecured Loan (Generic)None1-5 years$50,0006%-20%
Business Line of CreditNoneOngoing$20,0008%-25%
Merchant Cash AdvanceFuture Sales3-12 months$30,00015%-35%
Invoice FinancingOutstanding Invoices1-3 months$20,00010%-30%
Short Term LoanNone3-18 months$40,00010%-25%

Best Unsecured Business Loan Providers in Australia

The Lend Unsecured Business Finance Engine

This is just a small sample of unsecured business lenders available through the Lend.com.au portal. By making one 5-minute application, in which you specify the type of loan your business requires and upload recent copies of your company’s bank statements, Lend will automatically approach numerous lenders on your behalf, having no impact on your credit score until the point you decide to make a formal application. Lend will only recommend a lender if they believe your business has a good chance of being approved.

What is an Unsecured Business Loan?

An unsecured business loan is a loan provided to a business that does not require collateral. Instead, the lender evaluates the creditworthiness of the business and its ability to repay the loan based on financial statements, business credit score, and cash flow. Since no assets are required as security, unsecured loans are often easier and faster to obtain but may come with higher interest rates.

How Does the Process Work?

Application:

You apply for an unsecured loan and provide necessary financial documents like bank statements, cash flow reports, and business credit score.

Evaluation:

Credit Score: A higher credit score increases the likelihood of approval and may lead to better interest rates.

Cash Flow: Consistent and positive cash flow indicates a business’s ability to repay the loan.

Previous Loan History: A solid repayment history on previous loans can improve approval chances.

Purpose of the Loan: Clear and beneficial use of loan funds (e.g., expansion, inventory purchase) can positively influence approval.

Approval:

If approved, the lender provides a conditional offer, specifying terms and interest rates based on the assessment. Interest rates and loan terms may be adjusted according to the “health” of the borrower, including factors such as DSCR and overall financial stability.

Disbursement:

Funds are typically disbursed quickly, often within 24 hours of approval. Repayment terms are agreed upon, with fixed installments or flexible payment options depending on the lender’s policies.

Secured Loans Vs. Unsecured Loans

Secured Business Loans

  • Requires personal or business assets to be used as collateral against the loan.
  • The amount businesses are allowed to borrow will generally depend on the value of the assets.
  • Should be cheaper than taking an unsecured business loan.
  • Bad credit borrowers can improve their chances of being granted a loan by providing security.
  • Could allow businesses to borrow a greater amount.
  • Will incur professional costs if having an asset valued. I.e. second hand farming equipment or company vehicle.
  • Generally, secured business finance takes longer than receiving an unsecured business loan.
  • The biggest downside is that if you default on the loan, you lose the collateral itself. Additionally, lenders often give lower value to collateral than a borrower or appraiser would. This may mean that whatever you put up as collateral will be exchanged at a lower cost than it is worth.

Unsecured Business Loans

  • Loans primarily based on business credit score and cash flow – no assets required.
  • Likely to be more expensive with less preferential rates when compared to a secured business loan.
  • May require a personal guarantee from a director.
  • Usually for a smaller loan amount and to be repaid over a smaller period of time.
  • Quick application and processing times. De-facto, unsecured loans are short term business loans.

What are the Benefits of an Unsecured Business Loan?

Speed: Faster application and approval process compared to secured loans.

Flexibility: No need to provide collateral, making it accessible for more businesses.

Simplicity: Less documentation required, making it easier to apply.

No Asset Risk: Borrowers are not at risk of losing business or personal assets.

What Risks are Associated With Unsecured Business Finance?

Higher Interest Rates: Due to the higher risk for lenders, unsecured loans typically have higher interest rates.

Smaller Loan Amounts: Lenders may limit the amount they are willing to lend without collateral.

Personal Guarantee: Some lenders may require a personal guarantee from a director, putting their personal finances at risk.

Key Considerations Before Taking an Unsecured Business Loan

Evaluate Cash Flow: Ensure your business has a steady and positive cash flow to manage repayments.

Compare Offers: Look at interest rates, terms, and conditions from multiple lenders to find the best deal.

Understand Guarantees: Be clear about the implications of a personal guarantee and its impact on personal finances.

Purpose and Planning: Have a clear plan for how the loan funds will be used to generate growth and ensure repayment capability.

Alternatives to an Unsecured Business Loan

If an unsecured loan doesn’t seem like the right fit for your business, consider these alternatives:

Business Credit Cards: Flexible spending with revolving credit lines.

Line of Credit: Access funds as needed with interest paid only on the amount used.

Invoice Financing: Leverage outstanding invoices for immediate cash flow.