Unsecured Business Loans Melbourne: Definition, Perks and Disadvantages
What is an unsecured business loan?
In general 2 types of loans are available at present, secured as well as unsecured. By the term “unsecured business loan” we refer to a type of loan which is not secured against any asset including cash, property or equipment. It does not entail any collateral and is solely based on the business borrower’s creditworthiness.
How it helps businesses
In case you do not possess any asset or have been in business only for a short span of time, it is highly probable that you won’t be lent money by your bank. Unsecured business loans can prove to be extremely beneficial in such cases. This type of loan is suited to businesses, preferably the new ones that do not own any asset or prefer to repay a loan by using the business health.
Unsecured business loans can prove to be helpful for small businesses on certain critical occasions and can help the business to prosper faster. Below we will take a look at how it is going to help businesses in general.
1. In their previous days, small businesses had an inclination to avoid getting any unsecured loan because of concerns regarding falling into a debt trap. However, this is not the case at present and in the contemporary rapidly developing global economy there are lots of opportunities available for the small companies to explore with enhanced confidence. It is possible for them to obtain additional funds so as to market their products as well as services by maintaining a decent cash flow position. They can also add new inventory, employ more staff and expand their premises. Unsecured business loans provide these businesses with the required edge to invest in a prudent manner thus helping them to prosper faster.
2. Another significant benefit of procuring unsecured business loans is the comparatively fast and hassle-free approval procedure. At present, business opportunities can come and go and it is imperative for any company to tap them at the proper moment. Consequently, a small business must not devote much time in filling up lengthy loan application forms which they should utilize for something more fruitful. It is possible to apply for an unsecured loan either online or through any mobile application. Moreover, all the essential documents including bank statements, tax statements, previous loan statements, business invoices and so on can be uploaded on the web.
3. A variety of unsecured business loans is also available for different business requirements. Small businesses which have been operating for the last several years and possess sound business financials will be able to apply for unsecured business loans. Although a nominal fee might be charged, there is usually no pre-closure penalty. Moreover, an unsecured loan can be repaid within a short period of time thus making it very easy for small businesses to properly plan their budgets.
Benefits of unsecured business loans:
1. No collateral
As compared to the secured loans, an unsecured business loan does not entail any collateral so as to qualify for financing. Consequently, in case you are not able to repay the loan on time, your home is not going to be seized by the lender along with your other personal assets.
2. Get cash faster
It is very simple to obtain unsecured business loans and therefore you can easily get the money faster. You need not spend must time for appraising the value of your assets and properties since collateral is not a part of the equation. Usually, a borrower will get his cash within only a few days although he might be required to make a legal promise to repay that loan.
3. Credit score not much of a factor
In case your business revenue potential is strong but you suffer from poor credit, it will still be possible for you to become approved for an unsecured loan. However, this will depend significantly on the particular lender.
Cons of unsecured business loans:
1. Higher expenses
Higher rates will be charged by the lenders since a borrower will be eligible for obtaining unsecured loan depending on his business revenue strength as well as credit score and not the assessed value of his assets.
2. Higher monthly payments
The majority of the unsecured business loans are available for shorter terms implying that the funds must be paid earlier. Moreover, interest rates tend to be higher for these types of loans.
3. No tax exemption
As compared to the secured loans, interest on an unsecured loan isn’t tax deductible.
Unsecured Business Loan Interest Rates
The interest rates for unsecured business loans are calculated on risk. In other words, it is actually lending based on risk. In fact, a business with a higher risk will require you to pay a higher rate of interest as compared to a business having a solid flow of cash as well as an experience of trading for quite some time.
Alternative forms of finance:
In case your business is suffering from poor credit and has limited financial history, an alternative to unsecured business loans will be obtaining a business cash advance. It will offer the following benefits:
1. No collateral required
2. Poor credit will not matter
3. Flexible repayment facilities
Companies/Businesses offering unsecured business loans:
- Prospa, established in 2011
- Capify, established in 2002
- Spotcap, established in 2015