Key Takeaways
- An unsecured business loan does not require assets to be used as security. Instead, the lender will look at your capacity to repay the loan to assess whether to approve your application or not.
- In contrast, a secured loan requires assets like real estate properties, vehicles, equipment or accounts receivable to secure the loan.
- To get an unsecured loan cash flow through your business bank account needs to be sufficient to service the loan amount you’re seeking. You should compare lenders before choosing one and submitting your application.
- The advantages of unsecured loans include not having to pledge assets as security, faster approval times, and fewer document requirements.
- Interest rates for unsecured loans are determined by your business turnover, financial profile, the loan amount, the lender’s policies, and the general market conditions.
- To get a higher chance of approval, it’s important to improve your credit score and choose the right lender.
Running a business requires constant access to funds. You’ll need funding for everything, from day-to-day expenses to emergency repairs. When it comes to securing funds, one of the most flexible options available to Australian business owners is the unsecured business loan.
Unlike secured loans, unsecured business loans do not require you to offer up assets as security, making them an appealing choice for many businesses. However, not many know how the application process goes. We’re here to simplify that process while covering the essentials like the key differences between secured versus unsecured loans, interest rates, and more.
What is an Unsecured Business Loan?
An unsecured business loan for small businesses does not require the borrower to pledge any assets as security. This is particularly beneficial for small businesses that may not have significant assets but still need access to capital to grow or sustain operations. Unsecured business loans can range from small amounts to larger sums and can also have varying term lengths.
Secured Versus Unsecured Business Loans
What’s the difference between a secured and unsecured business loan? Here’s a quick comparison:
- Secured Business Loans: Secured loans require security, such as property, equipment, or other valuable assets. These loans typically have lower interest rates because the lender assumes less risk. These loans can take longer to approve due to the lengthy valuation process, but they may come with higher loan limits and longer terms.
- Unsecured Business Loans: These loans do not require security from the borrower, making them a convenient choice for many business owners. The lender takes on more risk for unsecured loans, so they often come with higher interest rates than secured loans. However, they’re a great choice for business owners because the approval processes are typically faster, and these loans are ideal for when you lack significant assets or don’t want to tie up assets in a loan.
How to Get an Unsecured Business Loan in Australia
Obtaining an unsecured business loan in Australia follows a series of straightforward steps, but it’s essential to prepare thoroughly to improve your chances of success:
1. Determine Your Loan Needs
Start by identifying how much funding you need and for what purpose. Understanding this helps you find a loan that matches your business requirements. Doing this can also help you narrow down your choices of lenders as some may meet your funding needs while some may not.
2. Check Your Creditworthiness
Some lenders will look at both your personal and business credit scores to assess your ability to repay the loan. If your credit score has taken a hit, it’s best to look for lenders that approve loans for those with poor credit. With the help of an unsecured loan expert, you can find reputable lenders with the best rates in Australia.
3. Research Lenders
Various banks and financial institutions offer unsecured business loans in Australia, each with different terms and interest rates. Explore your options to find a lender that best fits your needs. Comparing lenders is also a great way to ensure you’re getting the best rates and terms.
4. Prepare Requirements
Banks will require full financials for unsecured loan applications but non-bank unsecured lenders will assess applications based on a read only view of business bank accounts statements and some may have some document requirements like a printout of your ATO ICA and ITA portals.
5. Submit the Application
Once you’ve chosen a lender and compiled any required documentation, you can submit your application either directly or through a lending expert. An unsecured lending expert like Dark Horse Financial will have access to a variety of lenders’ portals and be able to submit an application for you.
6. Loan Approval and Disbursement
If your application is approved, the lender will provide an offer that outlines the loan terms, including interest rates and repayment schedules. Once you accept the offer, the funds will be disbursed to you as soon as possible. You can now use the funds for your business.
Advantages of Unsecured Business Loans
Unsecured business loans offer several key advantages that make them an attractive option for many businesses. Here are some good reasons why you should choose one for your business:
Unsecured Business Loans, No Assets Required
One of the most significant advantages of unsecured business loans is that no security is required to secure the loan. This makes them an excellent option for businesses that do not have valuable assets, such as property or equipment, to use as security. This is also great for businesses that simply don’t want to tie up their assets in a loan.
Fast Business Loans for Immediate Needs
Since unsecured business loans do not require a valuation of assets or extensive documentation related to security, the approval process tends to be faster than secured loans. This is particularly beneficial for businesses needing quick access to capital to cover urgent expenses, manage cash flow, or take advantage of time-sensitive opportunities. Many lenders offer online applications with rapid approval times—sometimes within 24 to 48 hours.
Flexibility in Loan Usage
Unsecured business loans generally offer greater flexibility in how the funds can be used. Unlike some forms of financing that may be earmarked for specific purposes (e.g., equipment loans or commercial real estate loans), unsecured loans can typically be used for various business needs, including marketing, hiring, inventory management, expansion, or covering daily operating expenses.
Understanding Unsecured Business Loans Interest Rates
One of the most critical factors to consider when applying for an unsecured business loan is the interest rate. Generally, unsecured business loans have higher interest rates than secured loans because the lender takes on more risk by not requiring security. Interest rates for unsecured business loans in Australia can range anywhere from 8% to 20% or higher, depending on the lender and the borrower’s financial situation. The exact rate will depend on several factors:
- Creditworthiness: Your credit score plays a significant role in determining the interest rate. Businesses with strong credit histories and healthy financials are more likely to secure lower interest rates.
- Lender Policies: Different lenders have varying risk appetites and cost structures. Banks may offer lower interest rates for established businesses with proven track records, while alternative lenders may provide faster access to funds but at a higher interest rate. Shopping around between traditional banks, online lenders, and specialty lenders is crucial for finding the best rate.
- Economic Conditions: Broader market conditions and interest rates set by the Reserve Bank of Australia (RBA) also influence unsecured business loan rates. In a low-interest environment, businesses may benefit from lower borrowing costs. Conversely, when the RBA raises rates to control inflation, lenders may increase their loan rates accordingly.
Tips for Improving Chances of Approval
Here’s our unsecured business loan guide to help you streamline your loan application process:
- Improve Your Credit Score: Before applying for a loan, take steps to boost your credit score if necessary. Pay off outstanding debts, correct any errors on your credit report, and avoid taking on new debt.
- Prepare Requirements: Some lenders will require documentation, so it’s best to understand what your lender requires whether that be a no-doc or full-doc application.
- Seek Professional Advice: You can find better lenders, rates, and terms with the help of financial experts like Dark Horse Financial.
Real-Life Applications of Unsecured Business Loans
Case Study 1: $300K Unsecured Business Overdraft Limit to Support a Manufacturer’s Growth
A manufacturer needed an immediate cash injection to support their business growth and cover operating expenses. We helped them secure a $300,000 unsecured business overdraft limit without requiring any assets as security. The application was filed on a Thursday, and within 24 hours, the overdraft was approved. Because of the speedy approval, the business received the necessary working capital and smoothed out its tax obligations with the ATO.
Case Study 2: $250K Unsecured Term Loan for a Commercial Construction Business
A commercial construction in need of $250,000 in working capital approached us for a loan solution. The business required the funds to complete several ongoing projects without needing to provide security. Within 48 hours, the application for an unsecured 5-year term loan was approved. The term loan allowed the business to finish its projects on time, making it a more cost-effective solution than progress claims finance.
In Summary
Unsecured business loans provide a flexible and accessible funding option for businesses of all sizes in Australia. Whether you’re looking to expand, manage cash flow, or take advantage of new opportunities, an unsecured business loan can provide the financial boost you need without pledging assets as security. By understanding the application process, you can improve your chances of securing the right loan for your business.
Apply for Unsecured Loans
If you need an unsecured loan in Melbourne, Brisbane, or anywhere in Australia, we can help you find the best lenders that can meet your needs.
