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Unsecured Loan Guide for Businesses
Unsecured Loans are ideal for businesses that want to borrow a small amount over a short period. To help you find the most competitive business loans, we've compiled this insightful unsecured loan guide.
What's the Difference Between Unsecured Loans and Secured Loans?
The main difference between these loan types is the need for collateral. Secured loans require you to provide collateral in the form of physical assets. An unsecured loan does not, making it ideal for businesses which do not have this security, as the secured loan amount will depend on the security value you can provide. Unsecured business loans are typically ideal for new businesses, as they may not have the assets to support an application for a secured loan.
If you're searching for competitive business loans, it's important to be aware that an unsecured loan's interest rates and repayment terms will depend on your financial position. This is because unsecured loans represent a higher risk to the lender, so you'll need a good credit rating and an excellent financial history as the borrower.
If you are looking for low-credit business loans, unsecured business funding options may require you to provide a personal guarantee.
If your business doesn't meet the often-required strict criteria set out by lenders, a personal guarantee based on your assets could improve your chances of approval. Suppose you have an excellent personal credit rating. The lender may approve an unsecured loan on the basis that you will be personally responsible for its repayment. It is worth considering that a sole trader or partnership will always be personally responsible for repaying a loan.
What are the Advantages and Disadvantages of an Unsecured Business Loan?
If you need a low-risk business loan, unsecured forms of finance may be the right solution. This is because there's no risk to your business or personal assets (unless you provide a personal guarantee). Because the value of your assets is unrelated to the business loan, the application process is often much quicker and easier than a secured loan.
During an application for a secured loan, the lender will need to see the documentation proving your asset ownership and current business value. This can take time, so if your business needs access to funds quickly, an unsecured business loan is often a favourable form of finance.
However, this fast processing time and low level of personal risk will likely mean that you'll be charged a higher rate of interest. If you have a poor credit rating, you'll likely be offered a very high amount in interest compared to a secured loan for the equivalent amount. Although many forms of unsecured loans can provide competitive interest rates.
An unsecured loan will not put your business assets at risk. However, if the loan defaults, the lender will likely resort to a debt collection process. This can create a stressful and difficult situation which may result in your business having to apply for bankruptcy if you're unable to repay the debt.
What Unsecured Business Loans are Available?
Unsecured forms of lending are often more difficult to obtain as they represent a higher risk to the lender. However, our panel lenders are committed to providing loans to suit almost every business requirement. This means we can help you find unsecured loans for bad credit, even if your business has an undesirable financial background or credit rating.
Our lenders can loan amounts from £1,000 to a maximum of £20,000,000, with repayment terms from a few weeks to several years.
There are a variety of unsecured loans available, from those with fixed repayment periods to overdrafts and credit cards. The most popular forms of unsecured finance are often revolving forms of credit, which involve continuous flexible borrowing and a payment plan based on the amount borrowed.
There are various alternative options, such as invoice financing, asset financing and equipment financing, which are naturally secured against themselves without risking your existing business assets.
Understanding Unsecured Loan Terms and Conditions
In theory, unsecured loans will not put your assets at risk. However, there are many ways in which the lender may try to reduce their risk if you cannot provide collateral. One of the most common agreements involves providing a personal guarantee, effectively making you the co-signer for the loan.
Subsequently, your creditors could take your personal assets, such as your home and car, as repayment for the loan if you're unable to make the repayments. A limited personal guarantee can cover assets you currently own and those you may purchase in the future.
An unlimited personal guarantee expands on a limited personal guarantee. In addition, to recover the loan amount, you will also be responsible for paying legal fees and charges associated with recovering the debt. In contrast, a limited personal guarantee will set specific parameters on what the lender can recover. This is normally set as a monetary amount and is common when multiple partners are responsible for repaying the loan, as it divides the amount equally.
A blanket business lien is a legal claim over your business assets, regardless of whether the business loan is unsecured or secured.
If a lender files liens for your unpaid debts, it is possible for them to sell the business's assets to collect the outstanding amount, which could make your business bankrupt. When securing an unsecured loan for a new or existing business, the forms of finance available can vary significantly. Because there are so many aspects to consider when finding the right loan for your business, we're here to discuss the options available. Click the button below to find the right loan for your business, but please don't hesitate to contact us if you need assistance.
How to Find the Most Competitive Unsecured Business Loans
One of the most significant factors when applying for unsecured business loans is your credit rating. Your credit rating determines which forms of finance are available and the interest rate your business is eligible for. As your credit score will determine which loans you could be eligible for, you should check it before searching for available loans.
Our comparison service makes it as easy as possible to find unsecured business finance. We ask you a series of questions to find out more about your business and the type of loan you need. By analysing your finances and how much you need to borrow, we can provide you with a list of potential lenders and loan types.
As you search for a business loan, you'll discover that unsecured loans are available in many forms. Because of this, we rank your loan options using a match score that considers many factors, such as how much you need to borrow, the interest rate and the repayment period. Once you find a loan matching your requirements, the application process is straightforward, with loans often released within 24 hours.
Unsecured Loans FAQs
You can apply for unsecured small business loans the same way you would apply for any loan. Use our comparison service to find the best loan for your business, then follow the prompts to complete your application. You'll need to provide details about your business and finances, so it's beneficial to have these details to hand when applying.
As unsecured loans present a higher risk to lenders, they're typically only available to businesses or sole traders with good credit ratings. You may still be accepted for an unsecured loan if your business has bad credit, but you're more likely to be accepted for a secured loan using your assets as collateral.
An unsecured loan can be ideal for start-up businesses, as it doesn't require any assets to use as collateral. If your startup doesn't have much collateral to offer yet, this is very useful. However, you may need to provide a personal guarantee. It's important to be aware that this puts your personal possessions at risk if you cannot repay your loan, so it's important to have a thorough business plan and an understanding of your financial expectations before applying.
Unsecured debt refers to any type of finance not backed by collateral, so an unsecured loan is a type of unsecured debt.
If you're trying to find the best interest rate business loan, as with anything you acquire for your business, you must do your research. Find out which rates lenders offer, then determine what your business is eligible.
At BusinessComparison, we take the hassle out of finding the best-rate business loan. We take the information you provide to match your business to the lenders offering the best rates available to your business. Put simply; we do the hard work so you can focus on growing your business.
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