Cigno Business Solutions — Unsecured Business Loans
Whether you own a large established company or a brand new startup, reliable funding and steady cash flow will play pivotal roles in your businesses growth. On this page, we’re giving you a quick overview of unsecured business loans, how they work, and the scenarios that these loans are best suited for.
What exactly is an unsecured business loan?
There are two types of business loan, secured and unsecured. When you take a secured business loan, you’ll have to place an asset as collateral. If you fail to pay back your secured loan, your asset becomes the property of the loan provider. As you can imagine, these loans are far more accessible to people that already own valuable assets that they can offer up as security.
With secured loans, the lenders usually feel more confident in offering favourable interest rates and fixed-term agreements because they have some collateral in place that effectively secures their position. Unsecured business funding is very different. With an unsecured business loan, you don’t have to put up any of your assets as security. Because these loans don’t come with that added layer of protection for the lender, providers of unsecured business finance usually have to take a far more in-depth look at your trading history, credit score, and current financial standing.
Why take an unsecured business loan?
Unsecured business finance comes with many advantages. Here are the main ones:
No security needed
One of the main selling points of unsecured agreements is the fact that none of your property is put at risk. Having your home or most valuable assets tied to your businesses finance can mount serious amounts of pressure on you. Most people starting a new business understand that success is by no means a guarantee. If your only asset is your current home, using it as collateral for a new business is always going to be a perilous path to consider.
Flexible repayment plans
Unsecured funding often comes with flexible repayment periods. You can pay over the course of weeks or months as it suits you. In most cases, the longer your repayment period, the lower your interest rate will be.
Your performance is used as assessment criteria
Unsecured loans are suitable if your business is already trading in decent volumes and you are seeing some healthy success. As we’ve mentioned already, unsecured loan providers will have to assess your situation in more detail because the finance isn’t secured. If the loan provider can see that your sales are great and your business has a steady income, they’ll be far more comfortable offering you unsecured funding that is perfectly within your means.
A lot of unsecured business loan companies will offer online applications allowing you to apply from any mobile device at any time of the day. This level of convenience is perfect for small business owners needing to access funds as soon as possible.
Much faster payouts
If you need the funds in a rush, smaller amounts of unsecured finance can be paid out much faster than secured loans. Unsecured loans involve an assessment process that is much faster to complete with less legal barriers to overcome. This means the money can be paid to you within days or in some cases, within 24 hours from the moment you apply. This factor makes unsecured loans far more practical for urgent business situations where the costs or opportunities you face are immediate.
When are unsecured loans not an option?
There are certain situations where unsecured business loans are not going to be an option. Here are the key factors that would make this finance option less viable:
When your business is brand new or not trading enough
You might no be able to access unsecured funds if you’re just starting out. Unsecured business loans are usually only available to businesses that are generating a certain level of revenue. Age isn’t the concern, but performance definitely is. You need to have a favourable level of cash flow and sales to convince the loan provider that you’ll be able to make repayments exactly as agreed in your terms. This is often very hard to prove when you have a very small business or looking to grow a fresh new startup.
When you need larger amounts of capital
It’s typical for unsecured loan companies to have very strict limits on the amounts they can offer, even if you own a very successful business. These loans are not really designed for large investments. Instead, they’re more applicable to business owners that need a quick injection of funds to settle urgent costs.
We hope this quick breakdown of unsecured business loans has helped! If you’re in a pinch and need to up your working cash flow quickly, unsecured finance could be the way to go. If you need a substantial amount or would prefer to use your assets as collateral to secure long-term agreements, secured loans might be the more appropriate option.