Key Takeaway Table
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Definition and differences with secured loans
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Unlike secured loans, unsecured loans do not require assets like real estate or equipment to secure a loan. Instead, lenders will assess eligibility based on creditworthiness and revenue through business bank statements.
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Benefits of an Unsecured Loan
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Generally, the approval process for unsecured loans is quicker than for secured loans. Additionally, unsecured loans from non-bank lenders are more accessible to borrowers with bad credit or those with outstanding tax debt.
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Understand your credit profile.
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To get the best unsecured loans, understand your credit profile. Look at your credit history, cash balance, turnover, tax position, industry, and financial needs to find out what unsecured business loan and lender are best for you.
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Unsecured loans from banks
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Banks provide the best rates and terms for unsecured loans. However, they have the toughest credit criteria.
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Unsecured loans from non-bank lenders
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Non-bank lenders are more lenient when it comes to credit requirements. Those with tax debt or a lower credit score can still get approved. Non-bank lender assessments are also faster.
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Choosing the right lender
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Choosing the right lender is crucial to getting the best unsecured loan for your business.
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What is an Unsecured Loan?
When your business needs funding for any purpose, you can choose between getting a secured or unsecured loan. A secured loan requires the borrower to pledge assets like property, equipment, or vehicles as security. However, with unsecured loans, lenders base borrowers’ eligibility on creditworthiness, business performance, and guarantees.
Here are some key differences between secured and unsecured loans:
Secured Loan
- Lenders require property security, which can come in the form of real estate and other assets.
- Interest rates are typically lower due to the lower risk.
- It can be easier to get approved due to the provided property security.
- Processing time can be longer due to the reviewing process for eligibility.
- Some lenders may offer longer loan terms.
Unsecured Loan
- Lenders don’t require property security. They will instead review business financials and require a guarantee from the business or the director.
- Interest rates are generally higher due to the absence of security.
- Traditional banks have higher approval criteria, such as a higher credit score or better business performance. Non-bank lenders usually have lower credit criteria.
- The process is much shorter since there’s no need to assess security. Some unsecured loans can be approved on the same day of application.
- Unsecured loan terms may be shorter since lenders are trying to mitigate risk.
Benefits of an Unsecured Loan
Accessibility to Borrowers
Unsecured loans from non-bank lenders are more accessible to business owners who face credit or tax issues. Some lenders have relaxed financial requirements and can provide loans to those with tax debt or less ideal credit standing.
Faster Approval Process
Understanding Your Credit Profile
Finding the best unsecured loan involves matching your needs to the most suitable lender. To do that, you must first understand your credit profile. Here are some things you need to note:
Credit Score
Your credit score is a crucial factor to consider when applying for loans. Banks partially base their approval on how likely your business is to repay a loan based on credit history. However, you can find non-bank lenders that will approve your loan even though your credit score is bad.
Business Turnover
How much gross revenue does your business generate monthly or annually? Lenders may base your capability to repay based on how much your business makes. The higher your turnover is, the better loan terms you can get.
Cash Balance
What is the average amount of cash your business has on hand? Knowing your average cash balance can help you determine what kind of unsecured loan you need and what lenders will provide you with the best terms.
Industry
As a business owner, it’s important to know different lenders have industry preferences and exclude some industries. For example, commercial construction businesses are welcome to apply at some lenders and not at others. You should know if your chosen lender welcomes applications from your industry before you apply.
Tax Debt
Urgency of Needs
Unsecured Loans from Banks
Many business owners who need loans approach banks first because they have the lowest rates and longest terms. When it comes to unsecured loans, banks’ application process involves reviewing financials and your personal position. If your financials demonstrate consistent historical profit, no tax debt and your credit file is strong, applying for a bank unsecured loan is a great choice.
Non-bank Unsecured Loan Solutions
Non-bank lenders typically have more flexible credit criteria. Business owners with outstanding tax debt, those without up-to-date financials, and those with bank lending already in place can have success with a non-bank loan provider. The application process with a non-bank unsecured loan provider will be a read-only view of your business bank account statements and a review of the director’s credit file. The best non-bank lenders require a business to have been operating for 2 years and require the director to have a minimum credit file score of 550. However, there are loans available from others once your business has been trading for at least 6 months, and they can also cater to directors with poor credit.
Lender Selection is Critical to Getting Your Best Loan
Getting the best unsecured loan for your business in 2024 depends on the lender you choose. Whether you choose a bank or a non-bank lender, it's important to select one that addresses your specific funding needs, can provide the loan in the time you need funds and matches your credit profile.
Get the best-unsecured loan for your business with Dark Horse Financial. We are loan experts who will direct you to the best loans that will cover all your business’s financial needs.
