In today’s market, unsecured loans are popular with business owners, as they give businesses access to low-interest and flexible finance in a fraction of the time that it takes to secure other forms of funding, such as property finance. So, what do we mean by unsecured business finance?
What is unsecured business finance?
Unsecured business finance is a form of funding which does not require security via the assets of the business or through the director of the business offering personal assets as security.
Most lenders instead require a Personal Guarantee to be signed by a director or directors of the business as the means of security. There are of course, many types of unsecured business finance, including but not limited to:
- Term loans
- Short-term working capital loans
- Revolving credit facilities
- Overdrafts
- Merchant cash advances
- Ecommerce funding
With many options to choose from, making a formal application can be tricky so here’s some tips on things to consider when applying for unsecured business finance.
Things to consider before you apply.
Firstly, as mentioned above, there are a variety of products on offer, along with a diverse range of lenders. Traditionally, business owners have been used to term loans, with equal monthly repayments made, over usually a five-year period. This type of finance may be useful for some businesses. However, your funding requirements may be better suited to a revolving credit facility or a merchant cash advance.
When it comes to applying, it’s important to apply to the right lenders to ensure you are securing the best option for your business. Working with a trusted broker, who can apply to multiple lenders at the same time will give you many more options, perhaps options you didn’t even know were available.
When making an application, lenders will usually perform either a hard or a soft credit search. Soft searches are ‘light touch in nature’ and will not impact your credit score, but hard searches leave a ‘footprint’. Conducting multiple hard searches can adversely impact your credit file, both personally and for the business. Therefore, make sure the broker you are using knows the type of searches each of the lenders will conduct and make sure the broker keeps you informed.
A third consideration when applying for unsecured business finance is to carefully review the finance offer once you receive it. It’s important to look at not just the interest rate, but also the fees being charged as well as the flexibility of the loan being offered. Does the loan provide you with the flexibility you want for your business? For instance, can you repay the loan early without any charges or penalties? Are you able to make lump sum repayments without a penalty? Some lenders don’t offer this as an option, but many do. Therefore, make sure you find out before you sign the offer.
Most lenders will charge an arrangement fee as part of arranging the finance. The fees charged on unsecured business finance depend on the lender and can range from as little as one percent of the loan, up to ten percent in some cases.
If you decide to use a broker to arrange your unsecured business loan, most brokers will not charge a fee for using their service. This is because they are paid directly by the lender. That said, some brokers may charge a fee for their work, so it is worth discussing with them at the outset, before you start the application process.
