Unsecured business loans made easy
Whether your business is newly blossoming or you’ve been in the game for years, unsecured business loans can provide you with the opportunity for growth. We want you to find the best deal with a competitive interest rate and low fees, so your business can thrive, and with the latest rates and offers, Mozo’s easy-to-use comparison table above is a great place to start.
What is an unsecured business loan?
Unsecured business loans are one of the many funding solutions there to help Aussie businesses meet a range of needs, but unlike secured business loans, an asset (like property) isn’t required as collateral against the loan.
But just like other loans, unsecured business loans come with a number of different costs and features, and they can be used for a range of business purposes both big and small. So before you start comparing offers in the table above, here are some of the most important points you’ll want to know about unsecured loans.
- Interest rates: We don’t need to tell you that the interest rate is an important part of any loan, but what you do need to know is that business loan rates can be a little bit different to other loans. Instead of offering an annual rate, business lenders tend to offer fortnightly or monthly interest rates. And some lenders don’t even offer a rate upfront, instead they’ll provide you with a customised rate based on your businesses own profile.
- Fees: The other major cost to compare when looking for an unsecured business loan is fees. They come in many different shapes and sizes, but don’t be surprised to come across application fees (either as a dollar figure or a percentage of the loan), service fees and late payment fees when comparing loans.
- Rate type: The majority of unsecured business loans come with a variable rate which can change over time, but some lenders will allow you to lock your rate in with a fixed rate loan.
- Term length: The length of your loan can vary between lenders, especially if you’re looking for a short term business loan, but most lenders offer terms between three months and five years.
- Funding amount: Lenders generally offer minimum and maximum loan amounts to borrowers, so expect to be able to borrow anywhere from $5,000 to $500,000 - depending on your business’ turnover and capacity to pay it back, of course.
- Funding speed: Need your loan in a hurry? Many of the emerging fintech lenders are meeting that need with funding in as little as 24 hours.
- Repayment frequency: The frequency with which you’ll need to make repayments will depend on your lender and the exact loan you choose, with different lenders requiring monthly, fortnightly, weekly or even daily repayments.
- Early repayments: One handy feature often offered with unsecured business loans is the ability to make early repayments. However, it doesn’t come as a feature on all loans, and some lenders will even charge fees for early repayment.
- Redraw facility: Made extra repayments towards your loan but need them back for another purpose? A loan featuring a redraw facility might be a handy option to give you that extra bit of flexibility.
What can I use an unsecured business loan for?
Small businesses can cost an arm and a leg to run and sometimes you just can’t predict when you’ll need extra cash flow. Typically, an unsecured business loan will bring the most benefit if the value of the loan outlasts the loan itself.
Here are some of the common ways Australian businesses use unsecured business loans to their advantage:
- Purchasing inventory: Inventory is one of the biggest expenses for small businesses. So whether you’re in need of new stock or have the opportunity to purchase a large amount of inventory at a sale price, a small unsecured business loan could provide you with the quick cash injection you need.
- Expanding your business: Is your business bursting at the seams? Do you need more space for operations? An unsecured business loan can give you the opportunity to grow your business and ultimately put more money in your pocket.
- Buying new equipment: For most businesses, purchasing new machinery to either replace the old or to introduce new products is unavoidable. Though as much as your office employees would love a self-serve-soft-serve machine, it’s probably wise you only take out an equipment finance business loan for this if you own an ice-creamery.
- Hiring new staff: Your business model could suffer if you or your staff are overwhelmed with work. Hiring new staff members means a load-off for everyone, and your return on well-performing employees will help pay back your loan.
Are unsecured business loans safe?
The simple answer is yes. Unsecured business loans are just like other business loans in the sense that both banks and online lenders maintain thorough processes to ensure that borrowers can pay back their loans. After all, it’s in their best interests that you do!
To ensure that businesses are able to pay their unsecured loans back, lenders weigh up a range of personal and financial information during the application stage, including:
- Credit history of the business owner
- Amount of time the business has been operating
- Annual turnover of the business
- Bank statements and tax history
- A business plan (outlining how the loan will be used)
One of the other reasons many businesses feel safer taking out an unsecured business loan is because they won’t need to provide their own home, car or the business itself as collateral against the loan. That’s one of the reasons many borrowers are happy to pay a slightly higher interest rate than they would with a secured business loan, for that extra peace of mind.
What are the advantages of an unsecured business loan?
As we’ve mentioned, when comparing funding options the major benefit of an unsecured business loan for many borrowers is that it doesn’t need to be secured against an asset. Normally business owners would need to use their own residential property, their car, equipment from the business or the actual business itself as collateral against the loan, but with an unsecured loan this isn’t the case.
Unsecured business loans also tend to come with the same handy features you’d get with other types of business loans, including the ability to make early repayments, dip into extra payments through a redraw facility and to be granted funds quickly with speedy applications and funding.
And while interest rates do tend to be slightly higher than with a secured loan, an unsecured business loan could still be a better value funding option for major purchases and expansions than a business credit card, or a handy way to avoid dipping into your business savings account.
Of course, the best way to decide whether or not it’s going to be the right option for your own business is to weigh up the fees, features and rates on offer from the unsecured business loans in the table above.
Or if you’d like some extra help, have you considered having a conversation with one of Mozo’s business loans specialists? All you’ll need to do is complete a quick form with some details about yourself and your loan requirements and one of our in-house specialists will get in touch.
What are the disadvantages on an unsecured business loan?
Like an unsecured personal loan, the trade off of not having to provide collateral to secure an unsecured business loan is that you’ll likely be charged a higher interest rate than you would with a secured loan. This is because lenders deem unsecured loans to be riskier, which makes sense when there’s nothing there to secure the loan with.
Likewise, the other downside of unsecured business loans is that the maximum loan amounts and loan periods on offer to borrowers are generally smaller than those offered with secured business loans. Of course, this might not matter at all if you’re only looking for a smaller injection of funds for your business and are happy to make repayments over a shorter period.
If you think a secured loan might be a better fit though, make sure you head over to Mozo’s business loan comparison table for a range of secured offers.
What should I be careful of with unsecured loans?
Like any loan, it’s worth asking yourself a few questions before making the decision to take out an unsecured business loan.
Am I getting the best value deal?
Tip 1: Paying careful attention to the major expenses - like interest rates and fees - is a must when you’re comparing business loans, so make sure you weigh them all up to get a clear picture of the total cost of the loan.
Tip 2: Finding a great value deal is important, but features may just as important to you. That’s why comparing a range of offers, and not just opting for the one with the lowest rate, could help you end up with a loan that really suits your needs.
Tip 3: You may be familiar with business loans from major banks, but did you know about the emerging number of online lenders? Comparing offers from both will give you a greater choice of rates and handy features.
Is there a better funding option available?
An unsecured business loan isn’t going to be the best way to fund or pay for every business need, so it may also be worth considering:
Secured business loans: With (generally) lower rates, longer terms and larger possible loan amounts, a secured business loan could be a better fit for your business if you’re happy or to provide the required security.
Business credit cards: A business credit card could offer a more flexible and convenient way to manage your business cash flow and pay for smaller purchases than going through the loan process.
Business cash reserves: If you’ve got money sitting idly in your business bank account or business savings account then using it over a loan or credit card could be a smart way to avoid any unnecessary fees or interest.
More Unsecured Business Loans FAQs
Still have some unresolved queries? To help you understand all the ins and outs of unsecured business loans, we’ve answered some of the frequently asked questions (FAQs) about them below. For an even more detailed run through of the whole business loans process, don't miss our ultimate guide on how to get a business loan.
How much money can I borrow with an unsecured business loan?
Most unsecured business loans range between $1000 and $250,000, though your limit will be determined by how your business does financially.
Factors that affect how much you can borrow include:
- How long you’ve been in business: It’s unlikely you’ll be approved for an unsecured business loan if you’re in the early stages of your first business. Without prior evidence of good trading, a lender will struggle to assess whether your loan is a risk worth taking. A better option for a start-up business might be a secured loan.
- Your average sales: A mature business that can provide evidence of good cash flow and a steady repayment history will be more likely to secure a larger lump sum than a new business. Don’t stress out if your monthly average sales have been low, your lender could consider your cashflow forecast in deciding how much you can borrow when approving your loan.
- Your credit history: Unsecured business loans come from either banks or non-bank lenders. A business account with a high bank balance and no history of overdraws or exceeded credit limits will be looked upon more favourably than one with bad credit.
I need a fast loan. Can I get that from an unsecured business loan?
Absolutely. Without assets to assess, most loans will only take 24 hours to a few business days to be approved. It’s important to keep in mind that just because an unsecured business loan is quick to access, doesn’t mean it’s the best option for you. If you can afford to wait or have collateral available, securing your loan can grant you lower interest rates.
How much interest will I pay on my unsecured business loan?
High interest rates go hand-in-hand with high risk, meaning that unsecured business loans will often rack up higher costs than secured loans.
Here are some factors that affect your interest rate:
- Your personal credit history: It’s not just your business’ finances that get caught up in the crossfire, your personal credit history could also impact the interest you’ll pay. If you’ve got bad credit, some lenders are likely to make up the risk of lending to you by jacking up interest rates. Don’t fret, you can always work on getting your credit score back on track before making an application.
- Your loan amount and duration: As with any loan, the bigger your loan, the more you should expect to pay in interest. When it comes to the length of your loan term, shorter loans may mean you pay less interest overall, but the monthly repayments will be higher, and vice versa for longer loan terms. It’s better to be safe than sorry so pick a loan term that suits you, and don’t forget, if business is doing well, you may have the option of making extra repayments to pay your loan off quicker.
TOP TIP: Don’t forget about fees. It’s easy to be blinded by low headline interest rates when looking for a loan, so don’t forget to check if the lender has upfront or ongoing fees.
What flexible unsecured business loan features will I have access to?
The flexibility of an unsecured business loan will help put your heart (and bank account) at ease. Without assets on the chopping block you can stress less, and with a range of great flexible features your business can grow to its full potential.
Here are just a few benefits you may enjoy:
- Flexible loan amount and repayment time: With an unsecured loan you have a wide range of loan options. If you need more time to pay off your loan, keep in mind you’ll be paying more in interest.
- Fast application and approval: Do you need money to appear in your bank account overnight? With unsecured business loans, this can become a reality. Depending on your case, your loan can be approved in the space of a few hours.
- Extra repayments: Some lenders will allow you to make extra repayments on your loan so you can pay it off quicker. Check your terms and conditions to see what options you have available to you.
Where can I find the best interest rate for my unsecured business loan?
Right here! Scroll up to Mozo's business loan comparison hub for up-to-date rates and information on a great selection of banks and business lenders alike. Once you’ve found a lender that suits the needs of your business, click the blue ‘Go to site’ for more on what your options are or to start an application.