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Unsecured Lending for Businesses

Where a business has assets of value under its ownership, a broad range of secured loans and specialist funding solutions may be available. But what if secure borrowing is not an option or is not the preferred option for a business?

This is where unsecured business loans can help: A bespoke small business finance product that can be arranged with no formal security required from just 6.0%

What is an Unsecured Loan?

The phrase ‘unsecured loan’ refers to a company loan that is granted based on merit rather than security. With a secure loan, lenders want collateral (physical items of worth) as some sort of insurance policy to cover the loan’s charges. With unsecured lending, no such assets are required.

Unsecured finance can provide smaller businesses and start-ups with affordable access to essential capital, which may not have sufficient assets of value to qualify for secured loans. Borrowing options differ from one unsecured lender to the next, but most unsecured loans fall within one of two major brackets:

  • Completely unsecured lending: This is where no security or collateral whatsoever is required and is considered a comparatively high-risk loan on the part of the lender. In the case of non-repayment, recovery may take place by way of civil action, not through direct repossession of assets.
  • Lending backed by intangible assets: Some unsecured loans are taken out against an organisation’s cash flow as an alternative to tangible assets. This is a slightly lower-risk form of unsecured lending, though it is not always available from mainstream providers.

The key to getting a great deal on an unsecured loan lies in comparing the market with the help of a specialist broker.

Unsecured Loans

How Do Unsecured Loans Work?

Obtaining an unsecured loan is fairly simple if you fulfil the lending criteria outlined by your provider.

Affordability checks conducted by the lender will determine the maximum loan amount you qualify for. Any additional borrowing costs added to your loan, such as administration fees, will also be affected by this.

If you are happy with the terms and conditions of your lender’s agreement or proposal, you can sign the contract to make it legally binding. After which, the funds requested will usually be transferred to your account within 48 hours.

From start to finish, an unsecured loan can be arranged and accessed within a few working days.

Advantages of Unsecured Loans

Just a few of the key advantages of unsecured borrowing for smaller businesses are as follows:

  • No tangible assets are required for security.
  • Flexible repayment terms of 1 month to 5 years.
  • It can be arranged and accessed within 72 hours.
  • Comparatively low interest and overall borrowing costs.
  • There are no limitations on how the funds can be used.
  • Option to repay early (subject to additional fees).
  • There is no risk to your assets or repossession in the case of non-repayment.
  • Easy to arrange with minimal admin.
  • Ideal for smaller businesses that lack tangible assets.

Unsecured Loan Eligibility Criteria

All lenders impose their own unique eligibility requirements and qualification criteria for unsecured loans. However, most lenders impose the following eligibility requirements as the bare minimum:

  • Your business must have been trading for a minimum of four months.
  • You must have a valid UK business bank account active at this time.
  • Loans are available to sole traders, LTD Companies and limited liability partnerships.
  • A minimum annual turnover of £10,000 is usually required.
  • Your business must have a good credit history at the time of your application.

How these criteria are prioritised over others differs from one lender to the next. Some lenders have higher minimum annual turnover requirements, and some may require a particularly high credit score for an application to be considered.

This is why it is essential to pair your requirements with a suitable lender.

Secured versus Unsecured Business Loans

A secured loan requires assets to be provided against the loan, whereas unsecured loans do not.

  • Secured Business Loans: To get a secured business loan, the borrower must pledge some sort of collateral, such as property, equipment, or inventory.
  • Unsecured Business Loan: An unsecured business loan does not necessitate the provision of security by the borrower. The lender instead conducts a detailed assessment of the applicant’s creditworthiness and general financial position at the time. Lenders must recognise that they are financing a personal business that can easily repay their loan or risk losing their money.

The process of selecting the right form of business loan begins with assessing your individual needs and circumstances, as well as your possibilities of qualifying for one or both loan types. If the applicant has adequate assets to cover the loan’s costs, secured loans are frequently more cost-effective and easier to get. Unsecured loans may be the only feasible option for small and emerging businesses that lack substantial assets.

What is Bad Credit?

A business or individual is said to have bad credit when they have a comparatively low credit score, which disqualifies them from most mainstream financial products and services. Credit scores, a controversial and highly disputed measure of financial status and creditworthiness, can be severely (and near-permanently) damaged by even minor oversight.

Qualifying for an unsecured loan (personal or business) is then practically impossible with a low credit score. Such facilities are issued almost entirely on the basis of creditworthiness rather than the applicant’s broader financial status.

Some specialist lenders are willing to work with subprime applicants, but interest rates and borrowing costs on poor-credit business loans are almost always higher.

How Fast can I get an Unsecured Business Loan?

Unsecured business loan application processing times vary significantly in accordance with the nature of the applicant’s requirements, the strength of their application, and their chosen lender. In all instances, the support of an experienced broker can streamline and simplify all aspects of the application process.

The following are important elements that may impact the time it takes to get an unsecured company loan:

  • The lender’s processing time: Each lender may have varying loan application processing periods, and some lenders may be able to handle applications faster than others.
  • The borrower’s creditworthiness: To calculate the risk of default, the lender will normally analyse the borrower’s creditworthiness. Where an applicant has a good credit score, their unsecured loan application will almost always be approved faster.
  • The loan amount: Smaller loan amounts may be approved more quickly than larger loan amounts.
  • Completeness of the loan application: A comprehensive and well-prepared loan application may be processed faster than an incomplete or badly prepared application.

Applications can be processed and authorised by some lenders on the same working day, making them great for covering time-critical costs. Where additional evidence and paperwork may be necessary, the process can take longer.

The advice and support of an experienced broker can help fast-track your application.

Cost of Bad Credit Business Loans

Subprime business loans will almost always have higher rates of interest, along with elevated overall borrowing costs. The exact amount you can expect to pay will vary on the basis of multiple additional factors, which include how much you borrow, how quickly you repay the loan, the strength of your broader financial position at the time of your application, etc.

But while poor credit loans are naturally considered higher-risk, lenders typically increase fees and charges for subprime applicants.

Even so, it is possible to keep the costs of subprime products to the bare minimum by enlisting the support of an experienced broker to compare the available options on your behalf.

Applying with Bad Credit

Subprime loans exist for businesses facing one of the two issues below:

  • Poor Credit History: If the business has any negative entries on its credit file within the past few years, it may be unable to qualify for a conventional unsecured loan.
  • Inadequate Credit History: It could also be that a business simply has not been around for long enough to build a suitably robust credit profile and qualify for unsecured lending.

The solution in both instances is to work with a specialist subprime lender, which is more likely to be able to provide a poor-credit business with a competitive deal.

Advantages of Bad Credit Loans

Applying for a bad credit business loan can be advantageous in many ways, including the following:

  • Speed: A subprime small business loan can be surprisingly straightforward to organise if the rest of your figures and your general business profile are in order.
  • Low Risk: Loans that are not tied to any tangible assets are naturally low-risk, eliminating the prospect of repossession in the case of non-repayment.
  • Flexibility: A bad-credit business loan can be used for any lawful purpose and repaid over a period of one month to five years.
  • Accessibility: Smaller and newer businesses that lack tangible assets may find unsecured borrowing the only realistic option available.

Disadvantages of Bad Credit Loans

On the downside, bad-credit business loans bring the following disadvantages into the equation:

  • Smaller Values: Maximum loan value is tied to the risk level of the loan, which means that higher-risk subprime loans are generally quite limited in size.
  • Higher Costs: Interest rates and overall borrowing costs are almost always slightly higher than those of more conventional business loans.
  • Credit Issues: Depending on the sort of loan you apply for, a denied application might harm your business’s credit record even more.

Can a small business or start-up get an unsecured business loan?

Yes, unsecured loans are available to businesses of all sizes (even new start-ups). Unsecured small company loans are subject to the same broad conditions as personal loans for private customers. If the applicant (or their company) has good credit, no major debts, and a solid business strategy, they have a good chance of getting an unsecured loan.

The stronger your argument, the more probable it is that your lender will take your application seriously.

Interest rates are frequently higher than those of comparable secured loans; however, this is not always the case. Because the interest rate you are charged is impacted by a variety of circumstances, choosing an unsecured loan does not automatically ensure greater borrowing costs.

What if I Cannot Repay?

You must contact your lender immediately if you face repayment difficulties.

Failure to discuss these issues with your lender at the earliest possible juncture may impose additional fees or late payment charges.

This kind of action rarely benefits lenders, who will more than likely look at pursuing their money via debt recovery channels.

FAQ’s About Unsecured Loans

Which carries the higher rate of interest: a secured loan or an unsecured loan?

The answer depends entirely on the specific loan you take out and the provider that issues it. The great majority of secured loans have lower total borrowing rates; however, there are rare cases when low-interest unsecured loans can be cheaper.

What happens when an unsecured loan is not paid back as agreed?

You’ll usually be able to come to a mutually beneficial agreement with your lender if you encounter repayment difficulties. Your lender may seek legal repossession of your assets, which will subsequently be sold on to repay your debt.

Can unsecured loans be used to cover new business establishment costs?

You will need to present your lender with a solid and convincing business plan for this to be considered. Experience in the same (or a similar) niche will also work in your favour, as will good credit scores.

Can unsecured loans be repaid early?

Yes, but it is not uncommon for early repayment fees (and even penalties) to come into play.

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