Understanding Unsecured Business Loans

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Key Takeaways

Key PointDescription
DefinitionUnsecured business loans do not require any property security from the borrower. They are generally viewed by lenders as riskier than secured loans, which is why unsecured loans usually have higher rates and shorter terms.
Why Get an Unsecured Business Loan?With unsecured loans, you can get funding quickly, with some turnaround times as fast as 1-3 days. You can use the funds to address short-term, urgent needs without property security.
Common Types of Unsecured LoansSome of the most common types of unsecured loans include unsecured term loans, which give you a lump sum you must pay with interest over time, and unsecured overdrafts, which provide you with a revolving line of credit you can draw upon at any time.
Eligibility CriteriaThe criteria and requirements for approval are different across lenders. For traditional banks, applications will normally require full business and personal financials. However, non-bank lenders can approve applications despite bad credit, lack of documents, and existing tax debt.
How to Apply for an Unsecured LoanApplication for an unsecured loan starts with researching and comparing lenders. You should then calculate the exact amount you need and can realistically pay with your business income. Most non-bank applications are completed online or through the phone. Once you get an offer, review the agreement carefully before signing.

Unsecured loans are some of the most common types of financing sought out by business owners. With unsecured loans, you can get funds fast, allowing you to address working capital needs and pursue business opportunities immediately. Let’s take a deeper look into unsecured loans and how they work:

What Are Unsecured Business Loans?

An unsecured business loan is a type of financing that does not require the borrower to put up any security against the loan amount.  Lenders will require directors to personally guarantee the loans and some will require a General Security Agreement (GSA).  A GSA means a lender could access all assets of your business, including those you acquire in the future, as a means of covering any outstanding amount in the event of default.  As GSA’s can impact other lending in the future, whenever possible, we recommend unsecured loans that do not require a GSA.

In contrast, a secured loan involves putting up an asset like real estate property, equipment or invoices as security. The lender can rely on these assets in the event of default.

Unsecured loans generally have higher interest rates, shorter loan durations, and lower maximum loan amounts compared to secured options.

Why Get an Unsecured Loan?

There are several advantages to getting an unsecured business loan:

  • Faster Access to Funds: The application and approval process is often quicker since the lender doesn’t need to appraise security and applications are normally assessed with a read-only view of a business’s bank statements. This makes them a good option for businesses needing quick access to funds, such as for sudden operational expenses or taking advantage of time-sensitive opportunities.
  • No Mortgage Over Property: With an unsecured loan, there’s no mortgage over property, which many borrowers prefer. It also has the added advantage of leaving property free for future lending if required.
  • Address Short-term Financial Needs: Unsecured loans are ideal for short-term working capital needs, such as bridging cash flow gaps or covering operational expenses during off-peak seasons. These loans can often be repaid quickly, reducing the overall interest cost compared to longer-term financing.
  • Preserve Other Financing Options: Taking out an unsecured loan doesn’t prevent you from getting other types of secured financing later on.

Types of Unsecured Business Loans

Some of the most common unsecured financing options for Australian businesses include:

Unsecured Term Loans

This involves the borrower receiving a lump sum amount, which they will repay with interest over a set term.

Unsecured Overdraft

An unsecured overdraft is a revolving credit limit business owners can draw on as needed, only paying interest on the outstanding debt and not the entire limit. An unsecured overdraft is ideal for short-term financial needs, such as paying wages or emergency expenses.

Eligibility Criteria for Unsecured Loans

The eligibility criteria for unsecured loans can widely differ depending on the lender. To choose the right lender, you want to match the cheapest cost of funds with the lender with a track record of approving loans for your industry in the timeframe you need.

Banks’ unsecured loan application process will typically require full financials of the business and the director’s personal lending and tax position. While the application process takes the longest compared to non-bank lenders, rates from banks for unsecured loans are lower and longer terms are typically available. 

Meanwhile, non-bank lenders typically have a policy that welcomes business owners who cannot qualify for bank funding. Applications can be funded within 24 hours with some lenders. They may allow those with bad credit to access unsecured loans provided that they have no outstanding defaults with other lenders. Most offer low or no-document solutions, requiring a read-only view of bank statements to assess applications up to $500,000. Most lenders will also offer loans despite applicants having outstanding tax debt with the ATO.  

How to Apply for an Unsecured Business Loan

The application process for an unsecured loan is generally:

  • Research and compare lenders: Look at eligibility criteria, loan amounts, rates, terms and fees from banks, non-banks and online lenders.
  • Calculate how much you need: Know the exact loan amount required as well as how you plan to use and repay it.
  • Gather financial documentation: This will be full financial information for a bank application but may only include a bank statement link for non-bank applications.
  • Complete the application: Nowadays, most unsecured loan applications are done online or over the phone. If you’re not sure where to start, you can always enlist the help of loan experts like Dark Horse Financial.
  • Review and accept the terms: If your loan is approved, carefully review your loan agreement and check the loan rate, terms, and conditions before signing.

This process from the application to the release of funding can take anywhere from 24 hours to several weeks depending on the lender. 

Dark Horse Financial can help you find the best unsecured loan for your business.

Unsecured business loans provide fast, flexible financing. They are worth considering if your business cannot qualify for secured loans or if you want to avoid using assets as security. With the right strategy and financial management, you can use them to lead your business to success.

With the help of qualified loan experts, you can find a loan that perfectly fits your business needs. We’ll help you with every step of the process, from shopping for lenders to signing the loan agreement (and even beyond that).

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