The features and benefits of unsecured business loans
You can apply for a loan big or small, with amounts starting as low as $5,000 and ranging all the way up to $500,000, making them useful for a vast array of purposes.
You can also take advantage of the ability to space out your instalments, with terms as short as three months and as long as five years available so you can tailor repayments to your business’ needs.
Crucially, your business’ funds can be made available on the same day, with some lenders able to approve your application and fund your loan in just two hours.
These loans are designed to be flexible so operators can use them across any area of their business, meaning you can distribute the funds however you like to cover your expenses.
If your business finds itself in a time of increased demand and revenue, you’ll be able to contribute above the minimum required amount and pay off the loan early without any fees with many lenders.
Your business doesn’t have to have been up and running for years prior to your application, with many lenders requiring as few as six months of trading to qualify for financing.
There’s a range of loans and lenders available on the market right now which offer a discount on fees or are willing to waive certain charges, such as ongoing annual costs.
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Unsecured business loans explained
How do unsecured business loans work?
Unsecured business loans are those which don’t require any form of asset to serve as collateral for the loan. The way they’re structured is no different from any other standard loan: on approval, you’re given a lump sum to use for business purposes, from which point you’ll be required to pay off the debt in even instalments across a pre-determined period with interest until it's completely paid off.
They’re one of the most common types of finance available to small and medium businesses in Australia and there are several reasons why this is the case, which essentially boil down to the fact that they’re easier to obtain. Many businesses don’t have the assets required to secure their loans, such as property or valuable equipment, so they’re available to a wider demographic. Additionally, because of this lack of a security requirement, they’re faster to process and fund, given that lenders won’t need to spend any time assessing the asset’s suitability
What types of unsecured business finance can I choose from?
There are many different options when it comes to business finance in Australia without security, so it’s important to understand your options before diving into the application process. As well as comparing different offers right here with Savvy, any of the following finance types may be suitable for your business in different circumstances:
Standard business loan
As discussed, this is the most common option available to businesses with a basic structure of repaying gradually alongside interest and fees over a set term. Many businesses will consider this the best business finance for their needs.
Business line of credit
Lines of credit are different from loans in several key ways. Rather than handing the business operator a lump sum to manage and start repaying effective immediately, a lender will approve them up to a set limit on their credit line. This allows them to withdraw funds up to that limit whenever they’re needed and only pay interest on the amount used, adding greater flexibility to the process.
Lines are also revolving, meaning that, in many cases, they can stay open as long as they’re viable, saving the trouble of applying for finance whenever you need it. However, interest rates can be higher, meaning it may cost more for you to leave a debt outstanding on your account, and fees can be charged even if you don’t access the line in a given month.
Overdraft facilities are similar in structure to lines of credit, except they’re attached to business transaction accounts as opposed to coming directly from a lender. This enables business operators to withdraw from their account beyond $0 up to a pre-determined limit. The process of applying and getting approved for this facility is similar to that of a loan or line of credit.
A key element of overdraft facilities is that, unlike lines of credit, they come without set repayment schedules. This means your business can pay off the debt at whatever speed you prefer, with only interest required per pay cycle. Because rates are also quite high for this type of finance, though, you’re better off clearing your debts sooner.
Invoice finance is an alternative type of funding available to businesses who are seeking payment for outstanding invoices from their clients. There are two main types of invoice finance which are important to consider if you find yourself in this position as an operator:
Invoice factoring involves selling your outstanding invoices to an external organisation, which advances as much as 90% to 95% of their value to you. The remaining amount owed will be passed onto your business once the customer pays their invoice, with service fees deducted from that sum. In this way, invoice factoring isn’t a type of loan.
Invoice discounting is essentially a line of credit taken out and secured by the value of your outstanding invoices, which can enable you to obtain up to 90% of their value immediately. Whilst invoice discounting is a type of secured finance, you won’t need any assets to serve as collateral for the loan.
Types of business loan
The most common type of business finance, unsecured loans enable businesses to access the funds they need without attaching an asset to the loan as security. Some lenders may allow you to borrow up to $500,000 and, because there's no collateral, offer same-day approval.
If your business already owns valuable assets, such as property or expensive equipment, you may choose a secured business loan instead. These loans may increase your borrowing power beyond what an unsecured loan can offer and, crucially, typically come with lower interest rates.
Business loans don't always have to be worth hundreds of thousands. If you're operating a small business and need a boost to help you keep on top of your expenses or expand your company, you may be able to take out a loan starting from as little as $5,000 and unlock further capital.
Just because you don't have all the required documents for a standard business loan doesn't mean you're out of options. Low doc finance enables you to use alternative documentation, such as other business financials, in the application process to access the funds you need.
A commercial line of credit allows you to draw from your loan account whenever your business needs access to their funds, instead of managing a lump sum and repaying it like a regular loan. This can add flexibility to your finance arrangement, providing money when you need it.
Invoice finance presents another option to business operators looking to free up cash through outstanding invoices yet to be paid by their customers. Your invoice finance can either be invoice discounting or factoring, which present different options when it comes to your invoices.
A common reason for seeking out a loan is to purchase commercial equipment. You can do this either with an unsecured arrangement or one with the equipment itself as collateral, with the latter potentially increasing your borrowing power and lowering your interest rate.
With this finance, when your business purchases product, your supplier provides an invoice which you send to your financier and pledge to repay by a set date. From there, your supplier sells the invoice to your financier at a discounted rate, while you repay the full amount to your financier.
Under an inventory finance agreement, your lender pays your supplier directly for inventory, which allows it to be signed off and sent to you. From there, you can pay off your debt within a pre-determined period to your lender, which may be longer than the regular debtor period.
An overdraft facility is attached to an existing financial account belonging to your business, such as a transaction or savings account, and enables you to borrow up to a set limit after the account’s balance reaches zero. These overdrafts are repaid with interest, but only on what you use.
You may simply be in a position where your business needs a boost to its cash flow. If this is the case, there’s a range of stop-gap solutions which may be suitable for your situation, from standard unsecured loans to specialist cash flow loans, invoice finance or even an overdraft.
Top tips for how to compare business loans
If you’re looking for a large business loan, it’s important to make sure your lender offers it. While some lenders can offer up to $500,000, others may only be able to approve you for a maximum of closer to $250,000. The same applies if you only need a small loan: minimum amounts can vary from $5,000 to $10,000. Our repayment calculator can help you determine the rough costs of different loans.
It’s important to enter this process with a clear idea of what your business can comfortably manage to repay. This will help inform your decision, as lenders set varying minimum and maximum loan terms. If you need up to five years to repay your loan, make sure you’re picking out lenders who can meet your needs. Similarly, there’s little use in taking longer than you need on a short-term loan.
The related costs which come with your loan are also a clear consideration which should factor into your thinking. Although you can claim the interest charges on tax, costs such as ongoing annual costs and application costs (the latter of which can reach up to 3% of your loan amount) aren’t tax-deductible. Always look to secure the cheapest and most manageable loan for your business.
Above all else, though, it’s crucial to ensure your business is actually eligible to be approved for a loan. Different lenders have different requirements when it comes to time in operation (minimums ranging from six to 12 months), revenue generated (from $5,000 per month to $1 million per year) and documents required (such as specific business financial statements).
The business loan application process
More unsecured business finance questions answered
Helpful business loan guides
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