Perhaps you're experiencing cashflow problems and have maxed out your credit, or you're looking to expand your enterprise with new real estate or equipment. Maybe you'd simply like peace of mind knowing your business has emergency funds available.
If so, you may want to consider an unsecured business loan. These loans can offer upfront lump-sum funds or a line of credit. If approved, you might be able to access your funds in as little as 24 hours.
Heritage Bank Fully Drawn Business Loan
Heritage Bank Fully Drawn Business Loan
Fixed and variable rate options
Redraw facility upon request
Penalty-free extra repayments
100% confidential application
Heritage Bank Fully Drawn Business Loan
Borrow from $20,000 and use to finance large business purchases and managing long-term cash flow. Secure with either a residential or non-residential property.
Loan security: Secured
Upfront fee: Application fee is available upon application
An unsecured business loan doesn’t require any assets to be attached as security. Depending on the lender and your average monthly sales, you can acquire funds of anywhere between $1,000 and $1,000,000 and have access to them in as little as 24 hours.
What are the main types of unsecured business finance?
Term loans. These are lump-sum loans with the funds paid to you upfront. Repayments are made according to a predetermined schedule ensuring the loan is paid off by the end of the term, which can range anywhere from three months to 15 years or more, depending on the lender.
Short-term loans. These have shorter repayment schedules than term loans. Based on your lender, the terms ranges anywhere from 3-12 months. Interest rates may be higher for these loans but they are repaid in a shorter period.
Lines of credit. A business credit line helps you draw as much money as needed up to a certain limit. As you repay borrowed funds, you regain access to them. A line of credit account is linked to your lender, not to your business account as in overdraft financing.
What do I need to know before applying for an unsecured business loan?
What do I need the funds for? If you plan to expand your business, for instance, buying real estate or equipment, consider a business loan that gives you a lump sum payment, such as term loans. If you’re unsure how long you will need the funds for or if you’ll need to borrow more soon, a line of credit may be more suitable.
How much do I need? Lenders usually provide anywhere between $1,000 and $1,000,000 depending on your qualifications and requested amount. Check what loan amounts the lender offers and determine how much you need. Asking for too much can hinder your approval chances but asking for too little means you may need additional funding.
When do I have access to my funds? It's important to ask your lender when you can access your funds. You may need your money before a certain time although, depending on your lender, it may only take a few business days or, in some cases, just 24 hours for your funds to be transferred.
How much do unsecured business loans cost?
Make sure you understand the difference between fixed and variable interest rates. If you have a low profit margin, beware of variable interest rates that may rise above your ability to repay. Also, learn the types of fees that lenders may charge. One-off fees may include application fees, exit/discharge fees and termination fees. Ongoing fees may include service fees or line/credit advance fees.
Loan amounts that are paid to you upfront, such as term loans, cost a portion of your loan amount plus the interest you’ll pay back over your term. The repayment amount depends on your loan term as well as the total loan amount. Line of credit loans such as overdrafts will have the interest charged on what you owe, but you may also need to pay ongoing fees.
How do lenders approve unsecured business finance?
You'll have to meet certain criteria that differ from lender to lender. Generally, most lenders look at two categories to make a decision: your business history and your repayment ability.
Criteria for your business history may include:
How long you’ve been in business (usually for a minimum of three to six months)
How long you’ve been renting your premises for
That there is a minimum lease period left in your lease agreement
Your credit history (personal and/or business)
Criteria for your repayment ability may include:
The purpose of your loan and the amount requested
The minimum required average monthly sales revenue (this may be around $50,000-$60,000)
Average monthly turnover
Amount and types of assets and liabilities
You don’t need to risk putting up assets as security. You can also get quick approval and acquire funds in as little as 24 hours.
Lenders put a lot of emphasis on repayment ability. This includes credit history, monthly sales average and cash flow. Another huge factor is business history, especially how long you’ve been in business and at the same address.
Individual lenders will define which they'll check, but usually the director’s credit history is verified. With non-bank lenders, they'll conduct a check of your business financial information provided in your application.
Unsecured loans prevent lenders from repossessing your business or personal assets. However, they're still able to take you to court in case of default.
Watch: 5 winning strategies to improve small business cash flow
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over five years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at the IT Journalism Awards. Elizabeth has found writing about innovations in financial services to be her passion (which has surprised no one more than herself).
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