Are all business loans secured against property? 

One of the most common questions we get from small business owners, who want to apply for a small business loan, is: Are all business loans secured against property? 

The short answer is no. You don’t always need to secure your business loan against property. One of the great innovations in business finance, thanks to fintechs like Lumi, is that small businesses can now take loans without security such as property. 

Secured vs. Unsecured business loans

Prior to alternative lenders offering unsecured business loans, businesses had to secure their loans against collateral, most often property. That’s what we refer to as a “secured loan”. But because most banks have such unachievable requirements for small businesses to qualify for a secured loan, there is a strong demand for more flexible lending options to small businesses who would otherwise not qualify for a secured loan. For example in the form of an “unsecured loan“. This type of loan can be taken at more flexible terms, without security such as property being required. 

The ability for a business to get a small business loan that’s not secured against property largely depends on the business’s individual situation including factors such as how much they want to borrow, how long they’ve been operating for, what industry they operate in etc. A financial risk assessment that informs the lender how risky it would be to lend to a business is also an important part of the process in deciding whether a business qualifies for an unsecured business loan. 

Before we jump into the pros and cons of unsecured vs. secured business loans, let’s have a look their main differences first: 

Unsecured business loans

• Don’t require any security in the form of collateral such as property. 
• Usually you can take out an unsecured loan up to a specific amount, most often around the $150K mark.
• Usually unsecured loans have shorter terms. 
• They are often more suitable to less established businesses who haven’t been operating for that long and who don’t have the financial history to get a secured business loan. 

Secured business loans

• Do require security in the form of collateral such as property. 
• Usually you can get a secured loan for larger loan amounts above $150K. 
• Typically secured loans have longer terms e.g. more than 3 years. 
• They are often more suitable to established businesses who have a long operating and credit history to back up the loan. 

What are the main pros and cons of business loans secured against property vs. unsecured loans? 

Pros of business loans secured against property: 

• Usually more affordable interest rates since securing the loan against property reduces the risk for the lender. 
• Typically you can borrow larger loan amounts.

Pros of unsecured business loans:

• No need to secure your loan against valuable assets such as property. 
• Easy application process. You can often complete an unsecured business loan application within minutes online, as you only require minimal documentation.
• Fast access to funds. Once you submit your application, you will usually get an outcome within 2 business hours and can receive the funds on the same business day. The processing times can vary from lender to lender. 
• More flexible terms and lending conditions. This varies from lender to lender but usually alternative lenders offering unsecured business loans can provide more flexible terms than the traditional brick and mortar bank loans. 

Cons of business loans secured against property: 

• The need to secure the business loan against collateral such as property. 
• Often this type of loan has stricter loan terms. 
• Usually a lengthy application process with a lot of documentation required including proof of security against the loan. 
• Approval processes can often take a few weeks until all documents are reviewed, processed and approved.
• Access to funds is often delayed since the application and approval process can take longer. 

Cons of unsecured business loans:

• Interest rates can be higher due to the increased risk of the lender providing unsecured funds. 
• Often there is a maximum amount that you can borrow unsecured. It varies from lender to lender but is often around the $150K mark. 

So, what is the right choice for your business? 

It all depends on your business’s situation and needs. Are you an established business with a strong and long credit history looking for a larger amount to take your business to new heights? You might find that a secured business loan could be a good fit. If you are a small business who’s recently started trading, like approx. 12 months ago, and you don’t have the credit history to back up your business and no available collateral to secure your loan against. In this case an unsecured loan might be the go-to option for you. 

The above comparison can definitely provide you with a great starting point in understanding the differences between unsecured and secured business loans and their respective pros and cons. We’d recommend that you do your own research to find a suitable lender that offers a financial solution that meets your business’s needs. 

Find the right business lender for your individual needs

At Lumi we offer both secured and unsecured business finance. We can offer up to $150K unsecured and provide you with flexible terms that are tailored to your business. We also offer terms from 3 – 36 months and can even give you a 4-week Payment Pause allowing you to pause your loan repayments for 4 weeks, interest-free, at any time your business needs it. You can complete our business loan online application in less than 5 minutes as it requires minimal documentation. Provided that you have submitted a complete application, you will receive an outcome within 2 business hours and can get your funds on the same business day. 

What do you need to start your business loan application?

If you tick the three boxes below, you are ready to start your online business loan application with Lumi: 

• Business operating for at least 6 months 

• Min $5K monthly turnover 

• Valid ABN/ ACN

Feel free to reach out to our lovely team of experts if you have any questions about your business loan application via support@lumi.com.au or give us a call on 1300 00 5864. 

Your Lumi team