What Are Unsecured Business Loans?

Key Takeaways:

• Unsecured business loans allow businesses to borrow money without having to put up collateral, like property or equipment.
  
• It is a great option for businesses that need cash quickly or don’t have assets to secure a loan.
  
• They are usually easier to apply for but come with higher interest rates and shorter repayment periods.
  
• You will typically need a good credit score and stable business finances to qualify.
  
• Unsecured loans can be used for various purposes, such as expanding your business, managing cash flow, or buying inventory.

Table of Contents

1. What Are Unsecured Business Loans?
   
2. How Do Unsecured Business Loans Work?
   
3. Pros and Cons of Unsecured Business Loans
   
4. Who Should Consider an Unsecured Business Loan?
   
5. How to Qualify for an Unsecured Business Loan
   
6. Types of Unsecured Business Loans
   
7. How to Apply for an Unsecured Business Loan with MacManus Asset Finance
   
8. Alternative Financing Options (Beyond Unsecured Loans)
   
9. Frequently Asked Questions (FAQs)

What Are Unsecured Business Loans?

Money is the bloodline of your business and sometimes, if not most of the time, you need money to make money and keep the business running. Ironic, right? This happens every day with businesses all over the world; it doesn’t matter if this is a billion-dollar company or a start-up.

So what happens when you are faced with a situation where you will need the money? That is when loans enter to fill in the demand. But wait, there is still something you need to get the money; you do not have the collateral to get the money! Enter unsecured business loans.

An unsecured business loan doesn’t require you to offer anything from you as sort of a security for the lenders. Instead, the lender will look at factors like your credit score and business financials to determine whether to lend you the money.

This differs from a secured loan, where you would need to sacrifice something valuable, like a property or equipment, as collateral in just in case you can’t repay the loan.

Unsecured business loans are generally easier to get since they don’t require collateral, they might come with higher interest rates because the lender takes on more risk.

Businesses may seek unsecured loans for various reasons, such as covering everyday expenses like paying employees or buying inventory, or funding larger projects like expanding operations or purchasing new equipment. Because no collateral is needed, these loans can provide quick access to funds.

How Do Unsecured Business Loans Work?

As mentioned earlier, from the perspective of the lenders, since there is no collateral involved, they will supplement this by looking carefully at your financial standing as a business owner and if your business is healthy in terms of cash flow. So make sure to look at your performance for the last 2 years and assess if your business or you will be qualified.

Another thing to remember before you avail yourself of an unsecured loan is that the interest rates are usually higher than secured loans. The reason is obvious: lenders will charge higher interest rates as sort of payment for the convenience and risk they take for this type of loan.

And you should also take note that the repayment period is much shorter, usually 1 to 7 years plus the interest rate.

Once you are approved for the loan, you will receive the money as a lump sum (as a whole). You’ll then need to pay it back in regular installments over a set period you and the lender agreed upon. These loans can be used for anything that helps your business grow, like hiring employees, purchasing inventory, or even covering seasonal cash flow gaps.

Who Should Consider an Unsecured Business Loan?

Unsecured business loans are good for businesses that basically need quick access to funds, either big or small and don’t have what they are willing to put as collateral or to secure a loan.

If your business is newer and doesn’t have enough time in business to qualify for a secured loan, or if you just don’t want to risk your assets, this could be the right option.

Startups, small businesses, and businesses that may not have much collateral to offer but still have a strong financial history or credit score can benefit from unsecured loans. They are especially helpful for businesses that are looking to cover short-term expenses or need working capital to grow.

How to Qualify for an Unsecured Business Loan

To qualify for an unsecured business loan, your lender will usually look at several factors:

• Credit Score: Lenders will review your personal and business credit score to see how well you’ve managed your finances in the past. A higher score increases your chances of approval.
  
• Business Financials: You will need to show that your business is doing well financially. This could mean showing your profits, revenue, and cash flow.
  
• Time in Business: Lenders usually prefer businesses that have been around for at least a year or two. This shows that you have stability and a history of operations.
  
• Debt-to-Income Ratio: Make sure that your income is greater than your debt. Your debt must not be greater than 36% of your overall income.
  

Types of Unsecured Business Loans

If you still cannot avail a business loan, there are other options that you can try such as:

1. Term Loans: This is the traditional loan option where you receive a lump sum of money that you’ll repay over a set period of time. You’ll pay back the loan with interest through monthly installments.
   
2. Lines of Credit: This works just like a credit card. Once you pay the amount you owe plus interest, you can apply for another loan again. However, the amount is predetermined or has a limit.
   
3. Business Credit Cards: This option has a lower limit than business credits and is recommended only for day-to-day expenses and are often unsecured.
   

How to Apply for an Unsecured Business Loan with MacManus Asset Finance

Applying for an unsecured business loan with MacManus Asset Finance is easy and free. Here’s how it works:

1. Get in Touch: Reach out through a call, email, or webform. MacManus will listen to your business needs and explain the loan options available to you.
   
2. Share Basic Information: They might ask you some simple questions about your business and request some financial details. This helps them create a loan offer that fits your needs.
   
3. Review Your Offer: You’ll get a no-obligation quotation. Take your time to review it. There are no fees or costs at this stage.
   
4. Apply for the Loan: If you’re happy with the offer, MacManus will prepare your loan application and work with lenders to get the funds for you.
   
5. No Fees: Unlike some brokers, MacManus doesn’t charge any fees. Their service is completely free for you.
   
6. Get the Funds: Once everything is agreed, MacManus will ensure the loan is completed on time and you get your funds when you need them.

Alternative Financing Options (Beyond Unsecured Loans)

1. Invoice Financing: This option enables you to borrow money if you have enough outstanding invoices that customers are yet to pay. You use these invoices yet to be paid as some sort of proof that you have incoming money.
2. VAT Loans: This option only applies if your business needs to pay the VAT (Value Added Tax). A VAT loan can provide the funds you need to cover your VAT liabilities. This type of financing allows you to spread the cost of your VAT payments over a set period, helping you pay the liabilities on time and avoid penalties.
   
3. Car Finance: For businesses that rely solely on vehicles, car finance works just like other option; purchasing or leasing a car over time. There are various types of car finance available, including hire purchase (HP), personal contract purchase (PCP), and leasing options.
   
4. Equipment Financing: Construction, manufacturing and medical industries are few of the many industries that use this option because equipments are more costly and sometimes must be bought in bulk.
   

FAQs

Can I get an unsecured business loan with bad credit?

No, you will need a good credit.

How long does it take to get approved for an unsecured business loan?

With MacManus Asset Finance; 24-72 hours.

What happens if I can’t repay an unsecured business loan? 

The lender may take legal action or negatively affect your credit score. Be transparent with your lender.