What is Unsecured Business Finance?
Unsecured finance offers a quick and simple way to inject capital into a business without the requirement of offering business assets or personal security such as a home property for collateral. Furthermore, it can be used for any business purpose.
Unsecured loans are available to all business types and sizes, and they do not require the borrower to be a homeowner (although this can be beneficial to obtain larger amounts). They are often supported simply by a personal guarantee from the director or shareholders of the business.
There are a limited number of lenders available that will look at offering finance without any personal guarantee, but this is typically only if the business is in a strong position with a credit rating that supports this.
Why use Unsecured Finance?
The key advantages of unsecured business loans are that no assets are required, and, with minimal paperwork, approvals can be obtained quickly. Some lenders are able to approve and deposit funds in as little as 24 hours. There is a lot of flexibility with more than 40 lenders available from highstreet banks, to challenger banks, and alternative providers, each with their own lending criteria.
Loan terms can vary anywhere from 3 months to 5 years with daily, weekly, or monthly repayment options available. Many often have no early repayment costs (ERCs) meaning you can pay back early without any penalty and without paying more interest than necessary. You essentially only pay interest on what you have used up until the point you repay the loan.
As unsecured loan can be used for any business purpose, they are a perfect solution for growing businesses that require capital, particularly if you do not have security available. Loans up to as much as £500,000 are possible provided the business meets the criteria and the loan is affordable.
How it works:
When applying for an unsecured business loan, lenders base their decision on the current performance and net worth of the business as demonstrated in the business’ bank statements and company accounts.
Affordability to repay the loan will also have a big bearing on the lender’s decision, so cash in the bank will also be a determining factor along with profitable trading.
As no physical security is required, ‘fair’ to ‘good’ business credit and the personal credit of the directors will often be necessary due to the lender having no assets or collateral to fall back on.
Lenders will usually request to see the business bank statements along with the latest filed financials – and if available, management accounts depending on the size of the loan requested.
