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Unsecured business loans don't require collateral, making them accessible but often with higher interest rates
Loan amounts and terms can vary, so it's important to compare lenders to find the best deal
Faster approval times are common, but eligibility criteria may be stricter than for secured loans.
How can I compare unsecured business loans
Look for a lower interest rate. A lower interest rate means paying less interest each month. Lenders won't always list their unsecured business loan rates because the rate you'll get depends on your financial position and your risk profile. Rates on unsecured business loans can run as low as 9% or as high as 25%, depending on your circumstances.
Factor in loan fees. Lenders charge establishment fees as a percentage of your loan amount plus monthly account fees and late payment fees. Try to estimate the cost of fees based on your desired loan amount and look for loans with lower fees.
Check the loan amount. Unsecured business loans range from $10,000 to millions of dollars. Check the minimum and maximum loan amounts of a loan before applying.
Find a loan with a suitable term. Loan terms range from months to years. You should have a clear sense of the timeframe you need to repay the loan. Shorter loan terms mean you pay less interest, but your monthly repayments are bigger. A longer loan term makes your monthly repayments easier to manage, but over the longer term, you're paying the lender more interest. You can use a business loan calculator to get an idea of what your repayments will be like with different loan terms.
Compare loan features. Some lenders offer pre-approval or let you make extra repayments on the loan.
Eligibility requirements. Lenders require your business to have operated for a certain length of time (6 months or a year for example) or require a minimum annual turnover. Don't waste time applying for a loan if you don't meet the requirements.
Unsecured vs secured business loans
Business loans can fund your business operations, help you cover inventory purchases or staffing costs and help you expand.
Secured business loans. These loans are lower risk because the borrower has to provide a property or business asset as security (sometimes called collateral). Secured loans have lower interest rates.
Unsecured business loans. These loans have higher interest rates because you don't provide anything as security. Your cash flow and business history are the evidence that you can repay the loan. Unsecured business loans can usually be approved quickly but have smaller maximum borrowing amounts than secured loans.
Do I need good credit to apply for an unsecured business loan?
Having a good credit history makes you a safer borrower in the eyes of a lender. This matters more with unsecured loans because the risk to the lender is higher.
If you have a lower credit score, a lender may simply put you on a higher interest rate. For borrowers with serious credit problems, there are bad credit business loans as well.
Credit history is not the only factor. Lenders also look at your business track record when analysing your credit application.
What are the main types of unsecured business finance?
Lenders big and small offer many different business loans. Often there is a specific name for a loan type, and then the borrower can choose a secured or unsecured version of that loan.
Business line of credit loans
Line of credit loans are a flexible alternative to a standard business loan. Instead of borrowing a lump sum and paying it back, a line of credit is essentially a pre-approved amount of credit you can have access to.
You can then spend as much or as little as you need, up to the overall credit limit. This way you only pay interest on what you spend. It's a bit like a business credit card but with a higher borrowing limit and a lower rate.
Market loans
A market loan, or market rate loan, is a business loan for medium and large businesses looking for larger but flexible loans.
A market loan's interest rate can be structured in different ways for greater flexibility or to protect against rate fluctuations.
These loans are useful for business owners who need to combine multiple loan accounts under one interest rate.
Business overdrafts
A business overdraft is linked to your transaction account. It allows your business to draw funds beyond what is currently saved in your account, with an approved total limit.
You pay interest on what you borrow. A business overdraft can be secured or unsecured.
Should I get a fixed or variable interest rate?
While most unsecured business loans offer variable interest rates, many lenders give you the option to fix the rate.
Variable business loans. These rates tend to be slightly lower, but they can fluctuate over time as lenders raise and lift rates.
Fixed business loans. By locking in a rate, you can know exactly what your repayments look like each month. This makes budgeting repayment costs a breeze. The downside is your rate will usually be a little higher than if you opted for a variable interest rate.
What are the pros and cons of an unsecured business loan?
Pros
Fast approval. Lenders can process unsecured business loan applications quickly because you don't provide anything as security. This means there is no need to assess any property.
Flexibility. Once approved, you can use your unsecured funds in any number of ways to further your business, cover short-term expenses or fund renovations or a new purchase.
No collateral required. With an unsecured loan, you don't have to put any personal or business property at risk.
Cons
Higher costs. Unsecured business loans have higher interest rates and fees than secured loans.
Less access to credit. Unsecured loans often have shorter loan terms and smaller loan amounts than secured ones.
Are unsecured business loan rates competitive?
You will get a more competitive interest rate with a secured business loan. These loans are lower risk for the lender because the lender can recoup its loss by selling the property you've offered as security if you fail to make repayments. Unsecured business loan rates are higher because the risk to the lender is higher. But even with these loans, rates vary quite a bit between lenders. Your credit score also impacts the rate you get.
So you can find a more competitive unsecured business loan rate by shopping around and making sure your credit score is in good shape.
What can I use an unsecured business loan for?
Business loans are quite flexible as long as you use them for your business and not for personal use.
You can use an unsecured business loan to do the following:
Hire new staff, pay existing staff or bring on contractors
Purchase inventory
Buy new vehicles or equipment
Expand your business
Acquire another business
Manage business cash flow
Pay an existing business debt
How can I apply for an unsecured business loan?
Start by comparing unsecured business loans to find one that suits your needs.
To complete a loan application, you'll need to provide your personal ID, your ABN and records of your business activity and finances (more on that below).
Depending on the lender, you may be able to link your business accounting software to the lender's online platform, which should make the application faster.
Once approved, your lender should transfer the funds to your account within 24 hours (some can do it instantly).
Eligibility requirements
Each lender has unique requirements but typically this includes the following:
Age of the business. Some lenders require the business to have been operating for at least 6 or even 12 months.
Minimum annual turnover. Lenders may insist on a minimum annual turnover (say for example $50,000 a year).
Documents. At a minimum, you'll need an ABN or ACN but lenders may also require trust deeds and bank statements.
Faster approval for existing customers. If you are already a business customer with a bank, loan approvals can proceed much faster and with less hassle. But it might still be worth comparing to see if you can get a better deal elsewhere.
What are the alternatives to unsecured business loans?
Invoice financing
With invoice financing, you can borrow against outstanding invoices. This is a quick, easy way to fix business cash flow problems without putting up property as collateral. Depending on the lender, you can have funds in your account within 1 business day. This kind of funding can be an option for when you're unable to fill an order because of a cash shortage.
We currently don't have that product, but here are others to consider:
How we picked these
Purchase order financing
If you're having trouble filling an order because of cash flow problems, you can apply for a loan where the lender pays your suppliers on your behalf. The supplier ships the order to your customer, who then pays the lender. Any profit from the transaction is deposited into your account.
Business credit cards with flexible spending power
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We currently don't have that product, but here are others to consider:
How we picked these
Equipment finance
With equipment finance, you can purchase business equipment. You won't have to pay for the equipment upfront. Instead, you can pay it off over time. You'll get to use the equipment in the meantime and use it to secure the loan. Depending on the lender, you can apply for a commercial loan or equipment loan, hire purchase, finance lease or novated lease.
Trade finance
With trade finance, banks and financial institutions act as intermediaries between the buyer and seller, providing a range of solutions addressing the complications that may arise while trading. It helps importing and exporting businesses manage cash flow issues that may arise due to changing marketing conditions and foreign exchange rates. There are a number of trade finance solutions available, including letters of credit, export and import finance, payment against documents and payment in advance. The lender acts as a third-party financier to facilitate the business deal while you're fulfilling the order. This type of loan is useful for business with suppliers and overseas customers.
Frequently asked questions about unsecured business finance
Some lenders can process your application in minutes, especially if you're an existing business customer or you have all your supporting documents together.
Once your application is approved, many lenders provide funds instantly or on the same day.
Yes. Sole traders can get unsecured business loans. You'll need to provide all the same financial information about your business.
Sole traders typically qualify for smaller business loans than larger businesses simply because sole traders tend to have smaller turnover.
Unsecured business loans offer fast access to funds. For an established business with strong financials, getting an unsecured business loan is a simple process.
Because interest rates on these loans are higher, business owners should compare loan offers to make sure they're getting a competitive deal first.
Business loan brokers have access to a panel of business lenders. They look at your borrowing needs and business details and help you find a suitable business loan. In exchange, the broker takes a commission from the lender.
You may be able to find a better deal yourself. But for a time-poor business owner or one with complicated borrowing needs, a broker is a tremendous help.
Elizabeth Barry is an experienced journalist with over 10 years of expertise in personal finance, contributing to outlets like the ABC, Sydney Morning Herald, and 7News. She holds a Master of Arts in Creative Writing and a Bachelor of Arts in Communication from the University of Technology Sydney, and has earned multiple award nominations, including a Highly Commended recognition at the 2017 Lizzies. Elizabeth began her career at Finder in 2013, progressing through roles to become Lead Editor, where she oversaw a wide range of personal finance coverage until 2024. See full bio
Elizabeth's expertise
Elizabeth has written 210 Finder guides across topics including:
Bria Horne was a writer for Finder, with a specialist knowledge of personal loans, car loans and business loans. Originally from the UK, Bria has been a professional personal finance writer in Australia for over 2 years. She has an M.A and B.A in Philosophy and Literature from the University of Sussex, and previously worked on the UK’s leading hospitality publication. See full bio
It's not always easy to know exactly how much money you need to keep your business cash flow healthy. Heritage Bank's Business Line of Credit lets you draw down what you need, up to a limit.
Heritage Bank's Fully Drawn Business Loan is a flexible business finance offering with both fixed and variable rate options, a high maximum loan term and no limit on borrowing power.
Take advantage of a fixed rate or variable rate business loan with CommBank.
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