When contemplating what business loan to consider, unsecured business loans are generally available to most businesses. This financing solution allows businesses the flexibility to acquire another business as part of its growth strategy. The list is endless in what the finance can be used for, including stock purchasing; funding sales orders; paying HMRC; recruitment; paying off other debts or general working capital.
Previously businesses used bank overdrafts or bank loans for working capital, unsecured business loans allow for greater flexibility. Unlike a secured business loan, unsecured loans are not directly backed by a charge over the property or another asset. It is important to highlight that business loans require a personal guarantee also known as a director’s guarantee if more than 20% of equity is owned by the business. These loans are available from six month to five years.
When considering the advantages of borrowing unsecured business loans, the main points are the following:
- Costs less to set up
- Don’t require the consent of mortgage provider
- Quicker to arrange and draw down
- Can borrow up to £250,000
- Interest rates start from under 6%
- Quick to get an answer and funds into your account
- Little restrictions in what an unsecured business loan can be used for
The main requirements for an unsecured business loan are a full set of company accounts; VAT returns and company bank statements. As loans are unsecured the finance companies are at more risk, as a result more stringent measures are taken on credit underwriting. Some lenders may require small business owners to have good credit scores and no history of bankruptcy.