For most business owners, managing cash flow and ensuring access to sufficient working capital are ongoing challenges.
One of the most widely recognised financial solutions for small and medium-sized enterprises (SMEs) to get access to much-needed funding is a business loan.
Business Loans for SMEs
An external cash injection can be an important financial stepping stone, allowing business owners to invest in operational sustainability and growth. However, traditional business loans often come with strict eligibility criteria, the requirement to provide property as collateral, and lengthy application processes.
For small businesses, an unsecured business loan offers an accessible alternative. Without the need for collateral, it provides faster access to the working capital needed to support operations and drive growth. To learn more about the differences between a business loan and a personal loan, click here.
But is an unsecured business loan right for you?
Understanding Unsecured Business Loans
Unlike secured business loans, unsecured loans provide businesses with funding without requiring an asset – most commonly property – to be used as security to guarantee the loan.
With secured loans, if your business defaults on the loan, the asset can be seized by the bank or lender to recoup the loss. With an unsecured business loan, there is no collateral requirement. This often means the applicant must provide a personal guarantee for the debt, along with the requisite financial reports, credit score, and cash flow projections.
Due to this, unsecured business loans do tend to incur shorter term periods and higher interest rates.
Should your business apply for an Unsecured Loan?
The answer depends on you and your business. Unsecured business loans are an excellent option for businesses that require quick, short-term funding and prefer not to use assets as collateral.
For new businesses and those with poor credit histories, unsecured business loans can be difficult to access. Plus, the difference in interest rate, eligibility, repayments and application process between secured and unsecured business loans needs to be taken into consideration. If you fall into this category, we recommend speaking with a ScotPac lending specialist.
Advantages to an Unsecured Business Loan
1. No collateral
Unsecured business loans don’t require assets to be used as security, eliminating the risk of losing an asset in the event of a default. However, a personal guarantee may still hold the borrower personally liable for repayment if the business cannot meet its obligations.
2. Low upfront costs
Unsecured business loans come with lower upfront costs, unlike secured loans, which require asset valuation and associated legal fees.
For small businesses, this can represent a significant saving, enabling resources to be allocated more effectively elsewhere.
3. Quick access
Without the need for collateral appraisal, businesses can receive approval in a matter of days or even hours. For SMEs facing time-sensitive opportunities or urgent funding needs, this can be critical.
4. Flexible funding
Unsecured loans provide borrowers with the flexibility to use the funding as needed for their business purposes. Whether it’s alleviating cash flow for daily expenses, purchasing new inventory, or investing in assets and staff, ultimately, the goal is to enable your business’s growth.
5. Improved credit
An unsecured loan provides new and small businesses with the opportunity to build a strong credit score over time, making future loan applications easier to approve and certain forms of business finance more readily accessible.
Disadvantages to an Unsecured Business Loan
1. Funding limits
Compared to secured business loans, unsecured loans generally come with smaller funding limits. This is due to the higher risk faced by the lender with no security to guarantee the loan.
2. Interest rates
For similar reasons, unsecured loans are often subject to higher interest rates. While this is an important consideration, for many small businesses the speed and easy accessibility of an unsecured loan can outweigh this cost over time.
3. Eligibility
Eligibility for unsecured business loans typically includes having a strong credit score. Lenders may also assess factors such as your business’s trading history, monthly turnover, and overall financial stability. These requirements can sometimes make it harder for new businesses and start-ups to secure the funding they need.
ScotPac’s Boost Business Loans
At ScotPac, our Boost Business Loans are designed to fuel and facilitate business growth. Our unsecured loans are available for up to $100,000 and offer flexible repayment options.
Additionally, once approved, your business can receive the much-needed injection of working capital within just 24 hours, thanks to our streamlined and fully online application process.
How can you Qualify for a Boost Business Loan?
Small and medium sized enterprises from any industry may be eligible for our business loans. However, there are still some key criteria that you will need to meet.
1. Operation
Your business will need to be operating for at least 12 months in the same location. This demonstrates stability and commitment on your part.
2. Turnover
Businesses eligible for a ScotPac unsecured business loan must demonstrate a minimum turnover of $10,000 per month in sales.
3. Funding
Our unsecured loans have a limit of $100,000. (Secured business loans can be up to $200,000.) As a general guideline, we can provide funding of up to 100% of your average monthly sales. A strong asset base, though, can assist in increasing the approval rate and loan amount.
Contact ScotPac to find out more about the unsecured Boost Business Loan
For over 35 years, ScotPac has been helping SMEs access the flexible funding solutions they need to fuel their growth.
To find out more why more than 8,500 businesses across New Zealand and Australia are turning to ScotPac for their funding needs or to begin the application for your unsecured Boost Business Loan, contact our team today.
