Key Takeaways
| Key Point | Description |
|---|---|
| Definition | An doesn’t need a mortgage over property or assets. Instead, it can be secured by a guarantee from the business and a personal guarantee from the director. |
| Advantages | With unsecured loans, business owners don’t need to put their assets at risk. The approval process is also simpler and faster. Unsecured loans are more accessible. With no doc application processes from non-bank lenders, borrowers without financials or those with no significant assets can still apply and get approved. |
| Tips for Finding the Right Lender | Deciding on the right lender involves comparing potential lenders and determining which ones provide the loan terms you need. To do that, you must first determine your specific needs and eligibility as a borrower. |
| The Verdict on Lenders | Banks offer the lowest cost unsecured loans but have the toughest assessment process, and it can take a number of weeks to get approved. Non-bank unsecured lenders assess with less documentation, allow tax debt, and accept lenders with bad credit. |
Although unsecured loans can help you secure funds quickly, there are some things you need to watch out for, like loan rates and terms. That’s why, when looking for an unsecured loan, finding the right lender is key.
Finding the right lender is not just about getting the lowest rates. You must consider several factors to ensure you get a tailor-made loan to your specific needs.
What is an Unsecured Loan?
An unsecured loan is a loan that doesn’t require real property security from the borrower. Security, usually in the form of real estate, equipment, machinery, and other assets, is typically required for secured loans. These assets serve as a guarantee in case borrowers can’t make repayments. On the other hand, unsecured loans are guaranteed by the business and the directors’ personal guarantee.
What's the Advantage of an Unsecured Loan?
The advantage of an unsecured loan is that it does not require a mortgage over property or other assets to secure the loan and be approved. This means they are more accessible to a wider range of business owners. The loan application process is also simpler since lenders don’t have to assess and value security. If a business owner needs funds quickly, an unsecured loan can be a great choice.
Unsecured loans are also more accessible to borrowers with less-than-perfect credit histories. Banks have the lowest cost of unsecured loans, but their credit criteria are much tougher than non-bank lenders. For this reason, borrowers with issues like tax debt and those with no significant assets can still get loans for their business needs.
Tips for Finding the Best Unsecured Loan Lenders
1. Define Your Borrowing Needs
Before looking for potential lenders, you should clearly define your business’s borrowing needs. Determine the loan amount, repayment terms, the purpose of the loan, and the urgency of your needs.
Different lenders may offer various types of unsecured loans, so understanding your needs is crucial to narrowing your search. If you need a constant source of funds for working capital or to cover emergencies, you may look for lenders that offer unsecured business lines of credit. However, if you need a lump sum for a one-time payment, you can opt for an unsecured term loan.
2. Know Your Credit Score
Check your credit score and understand your business’ monthly turnover. Understanding your outstanding tax balance and how that fits with a lender’s policy is also important. Generally, banks do not accept applications from borrowers with outstanding tax debt, but many non-bank lenders will.
What to Look for in a Lender
While searching for the best unsecured loan lender, here are the most important factors you need to check and compare:
Interest Rates and Fees
Review the lender’s interest rates and other fees. Unsecured loan interest rates are typically higher, so carefully examine the rates of different lenders to find one that’s right for you.
Loan Terms
Examine different lenders’ loan terms, including the repayment period, payment frequency, and if they allow any adjustments to the loan. Look for lenders who offer terms that align with your business’s cash flow and future plans.
Loan Amounts
Check the minimum and maximum loan amounts lenders offer. Look for those that offer unsecured loans that can cover the funding your business needs.
Requirements
Review the requirements across different lenders. Non-bank lenders typically require fewer documents, are okay with tax debt, and have faster turnaround time.
Approval Time and Process
Check how fast each lender can process and approve an unsecured loan. Doing so is crucial if your cash flow need is time-sensitive. Non-traditional lenders usually approve loans faster, with some providing same-day approvals.
Reputation
Research different lenders’ reputations in the industry and read reviews from businesses that have worked with them. Look for feedback on their websites or in relevant forums. It’s important to check if they have good unsecured business loan terms.
Penalties
Inquire about any penalties or other fees each lender may charge. For instance, lenders typically charge a prepayment penalty, which can hinder you from paying your loan ahead of schedule.
To Sum it Up
Find the Right Lender that Addresses Your Needs
Dark Horse Financial are loan experts who can guide you towards the best unsecured loans, whether you need funds for daily operations or a one-time large purchase. Talk to an expert today.
