Unsecured Business Loans

A complete guide to Unsecured Business Loans - 2024

As a small business owner, you need easy access to capital to buy new equipment or bid for new contracts. In many cases, you need the funds yesterday! The problem is, most people fail to qualify because of a lack of awareness on the various loan options and how to apply with the right lender.

Here is a quick guide to help you understand the best unsecured business loans in Australia, how to choose the right one based on your business, and understand the various factors that affect your loan proess. At Capital Boost, our lending specialists work with you to understand your business loan requirement, and match you to the right lender to help improve your chances of approval. 

What is an unsecured business loan?

By definition, an unsecured business loan is one which does not require you to pledge an asset or collateral against the debt.

Usually, when you avail a business loan from a bank or lender, they require some sort of asset or collateral to be pledged against the loan. A collateral is usually taken as an assurance by the bank or the lender to ensure that they can recover the money in case the business fails to repay the due loan amount. The value of the collateral or asset is often more than the amount that is offered as a business loan. 

On the other hand, an unsecured business loan simply refers to getting a business loan with no asset or collateral, purely on the basis of performance of the business over a period of time. This requires the borrower to show a consistently good credit rating, an excellent financial track record and adequate cash flow forecast. Since the bank or lender takes a higher risk in providing these business loans without any security, the interest rate associated with these loans are also often higher. 

Types of Unsecured Business Loans

In Australia, small businesses have access to various types of unsecured financing. Here are some common types:

1. Unsecured Business Line of Credit: This type of loan provides businesses with a revolving line of credit, allowing them to access funds as needed. Interest is charged only on the amount borrowed, making it a flexible option.
2. Short-Term Business Loan: These loans are designed to provide quick access to funds for immediate needs. The repayment term is usually shorter, ranging from a few months to a couple of years.
3. Merchant Cash Advance: This type of financing is based on future credit card sales. The lender advances a lump sum, and the repayment is made through a percentage of the business's daily credit card transactions.
4. Invoice Financing: Also known as invoice factoring, this type of financing allows businesses to receive immediate funds by selling their unpaid invoices to a lender at a discounted rate. The lender then collects the payment from the customers.
5. Online Business Loans: Various online lenders offer unsecured loans for small businesses in Australia. These loans can be convenient to access, with a streamlined application process and faster approval times.
6. Peer-to-Peer (P2P) Loans: P2P lending platforms connect borrowers directly with individual investors who fund the loan. Small businesses can access unsecured loans through these platforms, often with competitive interest rates.
7. Government Grants and Programs: The Australian government provides several grant programs and initiatives to support small businesses. While not technically loans, these funds can be a valuable source of financing without the need for collateral.

It's important to note that the availability and terms of these loans may vary depending on the lender and the specific circumstances of the business. It's advisable to carefully research and compare different options to find the best fit for your small business. Additionally, consulting with a financial advisor or business specialist can provide valuable guidance in choosing the most suitable financing solution.

Loan amount and repayment period

Unsecured small business loans in Australia range from $5000 to $500,000 for terms of 3 months to a maximum of 5 years, depending upon the size of the business.

However, each lender has a different policy associated with the loan amount and repayment terms. The rate of interest will also vary significantly based on factors such as time in business, your personal and business credit score, steady cash flow, etc. Since the bank or lender takes a higher risk in providing these business loans, the interest rate associated with these loans is also often higher.

Terms for an unsecured business loan

Loan Amount:	$5000 - $500,000
Loan Type:	Unsecured (No collateral/Security)
Loan Term:	3 months to 5 years
Loan Repayment:	Weekly, Fortnightly or Monthly
Loan Interest Rate:	Starting at ~9.9% p.a

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Unsecured Business Loan Eligibility

In order to get an unsecured business loan, businesses must meet the mimimum basic criteria as outlined below.

1. Active ABN with minimum 6 months in business
2. Mimimum turnover of $5000 per month
3. Fair credit history

Why should one go for an unsecured business loan?

An unsecured business loan is relatively less risky and comes through much faster compared to a collateral-backed one – more so when you apply with an online lender.You don’t have to leverage your personal or business assets to obtain funds.

Unsecured business loans are ideal for short-term, time-critical needs. For example, if the holiday season is around the corner and you need more staff or new equipment to increase production, you cannot delay that purchase for want of funds. In such cases, unsecured business loans are considered a better option, since the funds are usually available within a couple of days unlike traditional banks that would require more time and paperwork to process your application.For example,Capital Boost uses an advanced decision engine to quickly process loan applications and meet your urgent business needs.

What are the disadvantages of an unsecured business loan?

Since there is no collateral guarantee, unsecured business loans attract a higher rate of interest compared to secured business loans. This means that you will end up paying more over the tenure of the loan. You will also need to pay an upfront application process fee and an establishment fee when the funds are disbursed into your bank account. Depending on the lender, there may be a settlement or pre-payment fee, if you want to pay off the loan ahead of schedule. Ask for a complete list of the fees and charges applicable to you so that you can make an informed decision.

Unsecured business loans are also harder to qualify for, since these loans are purely based on the health of your business and your credit ratings. There is a higher chance of rejection if your business has a poor or non-existent credit history. If you are a fairly new start up, this might not be the best option for you. However, many online lenders do offer dedicated loans for people with bad credit, so be sure to do your research before applying.

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Factors to Compare Unsecured Business Loans in Australia

When comparing unsecured business loans, consider the following factors to ensure you make an informed decision:

1. Interest Rates: Compare interest rates offered by different lenders. Look for competitive rates that fit your budget and repayment capabilities. Lower interest rates can save your business money in the long run.
2. Loan Amount: Determine the maximum loan amount each lender offers. Ensure it meets your business's funding needs. Some lenders may have minimum or maximum loan limits, so find one that aligns with your requirements. As a thumb rule, most lenders offer up to one month of your average monthly turnover as a loan.
3. Repayment Terms: Examine the repayment terms, including the loan duration and frequency of payments. Longer repayment periods may result in lower monthly payments but could accumulate more interest over time. Consider your cash flow and choose terms that are manageable for your business.
4. Fees and Charges: Take note of any upfront fees, ongoing fees, or hidden charges associated with the loan. Common fees include origination fees, late payment fees, and early repayment fees. Factor these costs into your decision-making process.
5. Eligibility Criteria: Review the eligibility requirements of each lender. Some lenders may have specific criteria, such as minimum credit score, minimum annual revenue, or time in business. Ensure you meet these requirements before applying to increase your chances of approval.
6. Application Process: Evaluate the ease and speed of the application process. Online lenders often have streamlined processes with quick approval times. Look for lenders that provide a convenient and efficient application experience.
7. Customer Reviews and Reputation: Research the lender's reputation and read customer reviews. Look for feedback on customer service, transparency, and overall satisfaction. This can give you insights into the lender's reliability and professionalism.
8. Additional Features: Consider any additional features or benefits provided by the lender. Some lenders may offer flexible repayment options, access to financial tools, or additional support for small businesses.
9. Financial Advice: Seek advice from a financial advisor or business loan specialist who can guide you in comparing loan options. They can help you assess the fine print, understand the terms, and select the most suitable loan for your business.

By carefully evaluating these factors, you can compare various unsecured commercial loans in Australia and choose the one that best suits your business's financial needs and goals. At Capital Boost, we have a deep understanding of the terms and criteria of all major lenders in the market. This helps us evaluate your business needs and match you to an appropriate lending partner, thereby significantly increasing your chances of approval. 

Unsecured business loans for startup

Securing unsecured business loans for startups in Australia can be a challenge, as lenders typically prefer businesses with an established track record. However, there are still options available. Startups in Australia can explore avenues such as government-backed initiatives like the Business Growth Fund, which offers unsecured loans to support high-growth potential startups. Online lenders, crowdfunding platforms, and angel investors can also be potential sources of unsecured funding for startups. Additionally, some startups may consider personal loans or seeking financial support from friends and family. While securing financing for a startup can be more difficult than for established businesses, exploring these options, having a solid business plan, and seeking expert advice can help increase the chances of obtaining unsecured funding in Australia.

The important thing you need to consider while applying for unsecured finance is that your business must be operational, older than 6 months and have an average turnover of at least $5,000 every month. A good personal credit history will also help give the lending partner the confidence that you are capable to repay your loans on time. 

Unsecured loan with bad credit

Obtaining an unsecured business loan with bad credit in Australia can be challenging but not impossible. Traditional lenders typically prioritize creditworthiness, making it difficult for businesses with bad credit to secure financing. However, alternative lenders and online platforms may offer unsecured loans specifically tailored for businesses with less-than-perfect credit histories. These lenders take a more holistic approach, considering factors beyond credit scores, such as the business's revenue and cash flow. While these loans may come with higher interest rates and stricter terms, they provide an opportunity for businesses with bad credit to access the funding they need to grow and thrive. It's important to research and compare different lenders, carefully review the terms and conditions, and consider seeking guidance from financial advisors or business specialists to make the most informed decision.

At Capital Boost, we leverage our extensive market knowledge to considerably improve your chances of securing a loan, even with bad credit. Our lending specialists will assess your business financials and recommend the best suited lenders based on your situation.

How to better your credit rating to improve your chances for an unsecured business loan

Improving your credit rating from the perspective of obtaining an unsecured business loan in Australia is crucial for increasing your chances of approval and accessing more favorable terms. Here are steps to consider:

1. Review your Credit Report: Obtain a copy of your credit report from a credit reporting agency in Australia, such as Equifax or Experian. Thoroughly examine it for any errors or discrepancies that could negatively impact your credit score. If you find inaccuracies, report them and request corrections.
2. Make Timely Payments: Ensure you consistently make on-time payments for all your existing credit obligations, such as business loans, credit cards, and vendor payments. Timely payments demonstrate your ability to manage debt responsibly and can positively influence your credit rating.
3. Reduce Outstanding Debt: Focus on reducing your overall debt load by paying down existing balances. Prioritize high-interest debts and create a strategy to systematically decrease your outstanding balances. Lowering your debt-to-income ratio can improve your creditworthiness.
4. Establish a Positive Credit History: If you have limited credit history or a less-than-ideal credit score, consider establishing a positive credit track record. Open a small unsecured credit line or apply for a business credit card. Make regular, timely payments to demonstrate your creditworthiness and responsible borrowing habits.
5. Diversify your Credit Mix: Having a diverse credit portfolio can be advantageous for obtaining an unsecured business loan. Consider diversifying your credit mix by having a combination of credit cards, business loans, and trade credit. This shows lenders that you can effectively manage different types of credit.
6. Limit Credit Applications: Minimize the number of credit applications you submit, as each application can result in a hard inquiry on your credit report. Multiple inquiries within a short timeframe can negatively impact your credit score. Instead, focus on targeted applications that align with your business's needs.
7. Monitor your Credit Regularly: Stay proactive by monitoring your credit report regularly. This allows you to identify any changes, promptly address potential issues, and ensure the accuracy of your credit information.

By following these steps and demonstrating responsible financial behavior, you can gradually improve your credit rating, making it more likely to qualify for unsecured business loans in Australia. Remember that building a strong credit profile takes time, so consistency and patience are key.

Need more information?

Here is a link to some Frequently Asked Questions that will help you find answers to some key questions on how to go about securing a business loan that suits your requirements. Also watch how we help businesses in this video.

If you are a small business owner seeking funds for your business growth, our loan specialists will work with you to understand your requirements, match you to the right lender and help you secure the right loan in the shortest time possible.