Unsecured business loans can be the key to unlocking exciting and new potential for your business. But how exactly do they work?
When it comes to growing a business that is not only profitable, but also something you can be proud of, there are a number of things you’ll need to consider. Financing is one of the main concerns that can make or break a new and growing business. But, as they say, you’ve got to spend money to make money. Especially when it comes to the early stages of your business model. Finding accessible, liquid capital that is available quickly can be difficult, but not if you qualify for an unsecured business loan.
There are plenty of unsecured business loan options in Melbourne, which means that your business may be only a short period of time away from being on the fast track to excellency. Find yourself in need of a high-ticket item? Maybe you’re looking for a cash flow boost in order to better market your product? Perhaps you’ve grown so much that you’re going to need a few more amazing people on your team? Whatever it is that your business needs, an unsecured business loan can help. And it can help really quickly.
How Do Unsecured Business Loans Work?
Unsecured business loans in Melbourne work similarly to those you can find anywhere else in the world. What makes unsecured business loans so enticing for many small and growing businesses is that they are much quicker than normal loans, but they do pose a greater risk to lenders. This is largely because of how unsecured business loans work, in opposition to secured business loans.
Unsecured business loans are ideal for newer businesses, or those that are growing at a faster rate, because they don’t require the borrowing business to supply assets as collateral. Which explains why these types of loans are so popular for borrowers, but can be difficult to find due to the inherent risk the lender is taking. With a secured loan, assets are used as financial securities, this means that if the loan falls through, or the borrower is unable to keep up with their payments, the lender can seize and sell off any assets that were used as a security in order to recoup lost funds.
For years, these types of loans were nearly impossible to come by, however with the newest strides in modern technology, most businesses now don’t have tangible assets. Meaning that they don’t necessarily sell products or services that can be used for remittance. Companies that deal in things like IT, consultancy, research and development, or other types of intellectual property are incredibly important within the global economy, however, their assets are considered intangible. So the lending scape has changed, making it easier than ever to find unsecured business loans that can fit your needs.
The Pros and Cons of Unsecured Business Loans in Melbourne
As is to be expected, there are some definite upsides to businesses choosing to take an unsecured loan versus a secured loan. However, there are also some downsides to the process that should be carefully considered prior to ever signing any paperwork.
Some of the greatest advantages of unsecured loans are the pace at which they are processed, and the funds that businesses can get access to. Because these loans don’t require securities, or the valuations of those securities, businesses will not have to endure long wait times while assets are valued, instead they will be granted near immediate assets to funds once they are approved.
Another boon that these types of loans can offer businesses is that they are generally cheaper initially, with lower upfront costs if any exist at all. Which dovetails nicely into the speed at which borrowers can access funds. Loosening restrictions and allowing businesses to get back to doing what they do best, all at a lightning pace.
This quick access can help businesses gain a quick boost in liquid cash flow, which can then be funneled directly back into production and growth. Ideal for businesses that have a mammoth one-off cost for things like machinery or personnel, allowing them to quickly traverse the hurdle and boost their revenue stream. As opposed to having to wait to afford these types of necessities, which could put the business behind their estimated growth goals.
There are some less than ideal conditions to many unsecured business loans however. Again, most of these have to do with the amount of risk that the lender is enduring. Because these loans aren’t guaranteed for the lender, overall costs are generally much higher than that of a secured loan. However, these expenses are often factored into loan repayment schemes, so it’s an expense that is incurred over time. Which allows for the loaned capital to be put to good use, generating the expected income and remittance without the pressure of secured loans.
Some unsecured loans will require a personal guarantee from the borrower. This can mean the board member or director securing the business loan will need to act as a guarantor. So should the business default on the loan, repayment responsibility will then rest on the shoulders of the business owner personally. Should you choose to act as a guarantor for your businesses’ new loan, pay close attention to what would be expected of you should your company become insolvent.
The other important factor that any business considering an unsecured loan should be aware of is the strict criteria that many unsecured business loans come with. Oftentimes the borrowing terms, amount available to borrow, and financial history of the business will be much more restricted and comprehensive than those of secured loans. Again, this is solely to help lenders mitigate their risk.