An unsecured business loan is the most straightforward type of short-time finance, which is why it is so popular with SMEs. In today’s busy alternative finance market there are scores of online lenders who offer unsecured business loans on a wide range of terms to businesses that may not qualify for bank finance, or do not have assets to offer as security.
The ease of application can make these alternative lenders attractive even for well-established businesses that do meet the banks’ strict criteria – for some business owners, the speed of access to funds can outweigh the additional cost.
An unsecured business loan will be for an agreed term (typically 3 – 12 months), with regular repayments on a schedule agreed with your lender. You may be able to structure your repayments to suit your cash flow, which is great for seasonal businesses.
The cost of an unsecured short-term loan will depend on several factors, including the amount you wish to borrow, the term of the loan, and your risk profile. Typically, the interest will be higher than you could expect for a secured loan, and the higher the risk you pose to the lender, the more you can expect to pay.
You may be expected to provide a personal guarantee of the business loan, which could put your home or other personal assets at risk if your business is forced to default on payments.
Be aware that fintech lenders are not regulated in the same way as high-street banks, and many lenders have additional fees and charges. Failure to keep up with interest repayments, for example, may attract hefty fees which can quickly mount up. Be sure to check all the fees and costs, as well as other terms and conditions, when comparing loan options.