Most of us will be familiar with small unsecured loans as a consumer finance product. Unsecured personal loans, often referred to as ‘pay day loans’, are a product that has been widely available on the consumer finance market for some time now. Private finance companies realised that there was a gap on the market not catered to by traditional lenders such as high street banks and moved to fill that space.
More recently, finance companies have started to roll out a finance product that meets the same need for companies rather than individuals. There are even crowd funded business loan products available as a further alternative. The market is particularly developed for business in Australia, according to Unsecured Finance Australia, with good competition and a range of products. While the UK is still a little behind it is catching up fast.
So, what are the advantages of unsecured business finance, their unique qualities and the circumstances under which they could be the most appropriate financing solution for your business?
Advantages of Unsecured Business Loans
Fast Approval: perhaps the biggest advantage of this kind of loan is the speed in which you can have the funds in your company account. While applying for a traditional bank loan for a business will standardly take a minimum of weeks, unsecured business loans will usually be approved within 24 hours of application, with funds transferred shortly after that, often the same day.
As anyone who has ever run a business will know, unexpected expenses can create a real cashflow headache and securing a loan that will take weeks to process doesn’t really help in that scenario. Unsecured business loans fill the gap in the market for a fast cash injection in unforeseeable circumstances.
Less Bureaucracy: a related but separate plus is the fact that the application process and required administration and supporting documents are also minimized, making for a more time efficient process. If your business has a temporary cash flow issue, the last thing you need is to have to spend hours or days filling in extensive loan application forms and putting together reams of supporting documentation such as a business plan. Unsecured business loans usually involve a 10 minute-online form to be filled in.
Simplified Qualification: traditional lenders often have loan approval criteria that many perfectly functional small businesses simply can’t practically meet. To qualify for an unsecured business loan your business only needs to have been operational for at least 12 months and have monthly turnover of at least $5000, which can be shown to be relatively regular.
Borrow up to $300,000: while short-term, unsecured consumer finance loans are usually for relatively small sums of up to several hundred, equivalent business loans can, subject to the business’s turnover, be for up to six figure sums.
Short term: the nature of unsecured business loans is their intrinsic design as a short-term solution to a temporary cash flow issue. Loans are repayable between three and twelve months, meaning you can resolve the momentary issue without taking on a long term debt commitment that will sit on your balance sheet. Tradition business loans provided by banks are usually provided for a minimum of 2 years and early repayment fees can be punitive.
There is still of course a role for traditional, longer term, secured business loans when it comes to development capital. However, shorter term, unsecured and fast loans for cashflow purposes have been a clear and unfulfilled market need for some time now and business owners will be delighted that there is now a product to meet that need.