With an Unsecured Business Loan, your business borrows the funds you need over a set term and repays the ‘principal’ (amount you borrow) plus interest and associated fees. Unlike a secured business loan, this type of loan doesn’t require physical assets (such as property, vehicles, or inventory) as security. Instead, your lender will often look at your business’s strength and cash flow as security.
Unsecured business loans are generally suited for smaller amounts, usually $250k or less and can be approved quickly, as less upfront information is required. However, due to the higher risks for lenders, unsecured loans often come with higher interest rates compared to secured loan, line of credit loans, and debtor finance.
Lenders will give your business a ‘credit evaluation’ to decide whether they will loan you money based on current economic conditions and their assessment of your creditworthiness. This process is put in place, as they want assurances of your ability to repay the loan, plus interest, over time. Factors they will consider include the following:
- Your personal and business credit history and ability to manage finances
- Capacity to generate revenue and how much income is expected
- Capital including asset’s your business owns that can be sold off if you can’t repay
- The amount you are asking to borrow
- Higher risk for lenders usually means higher interest rates and fees
- How long it will take to repay the loan and how frequently you can make repayments
- Lenders may set other requirements or conditions for the loan to be approved.
