Unsecured lending by definition is lending that is not secured by real estate property or a specific asset (e.g. car/truck and piece of equipment). These are usually loans against the cashflow or balance sheet of a business with stable revenue streams. Unsecured lending can come in various formats but usually they are either an amortising business loan over a period of 1 – 7 years. There are also many FinTech companies that provide alternative financing solutions on an unsecured basis, with very quick turnaround times when the right data is provided and certain criteria are met.Talk To Us Now
Any business owner is eligible for unsecured business lending, this includes sole traders and partnerships. Some lenders may have requirements on how long a business has been running for before they are eligible to borrow or borrow above a certain threshold.
Generally speaking, unsecured loans range from $10,000 to $500,000 depending on the strength of the applicant and the business. Businesses that have high income and revenue where the owners have a substantial asset base can generally borrow substantially more than a business where income and revenue are not as strong or where the owner/Director does not have a substantial asset base
While it is possible for start-ups to borrow to help kick start the business, it is normally challenging to borrow on an unsecured basis. The reason for this is the high failure rate of start-ups and the very real possibility for the lender to lose all the capital that they lend to the startup without any assurance of repayment. We normally find that start-ups without consistent revenue streams either borrow against a real asset such as a property or raises equity from family/friends/investors until the business matures to a stage to be able to take on debt of its own.
The general rule is that unsecured business loans must be used for business purposes, this can include working capital; purchasing equipment; fitout; growth/expansion plans, purchasing another business, making a large purchase for inventories that cannot be used in a secured loan. There will be a declaration which will need to be signed as part of the loan approval process which states that the purpose for the loan is for business purposes.
Loan term for unsecured business loan varies depending on the nature of the loan, the lender, the borrower and the amount of the loan. Generally, the loan term can range between 6 months to up to 7 years where you will need to make a fixed periodic payment to the lender to pay back the principal plus interest.
Interest rate ranges from around 13% up to 25% per annum depending on the nature of the loan; the strength of the borrower and who the lender is. Most of the unsecured business loans we placed have been around the 15% mark. There may also be an establishment fee between 1-3% of the facility limit for some lenders.
“Asset backed” means whether you own any residential or commercial real estate assets. You are more likely to get higher loan amounts; longer loan term and lower interest rate if you are “asset backed” (property owner).
There are many non-bank lenders in the unsecured finance space. The well-known ones like Prospa, SpotCap, Moula etc have a large media presence and advertising reach but tend to be more expensive than the less well-known boutique lenders in the space (someone has to pay for all the radio ads!). We generally prefer to work with specialised boutique lenders who may offer interest rate up to 10-15% less than the big name lenders listed above.
It can be done as quickly as 1 week but generally will take 2-3 weeks from when all documents have been provided to us and the lender.
You may require financial statements and tax returns but it’s not always necessary as some lenders will only require BAS lodgement confirmation; account receivables/payables and bank statements.