‘Unsecured business loans’ seems to be the new buzz word for SMEs and for plenty of good reasons too. Today, we’re going to delve into the top 5 reasons why small business owners prefer unsecured loans in comparison to secured business loans.
You don’t have to provide collateral
While collateral can make a business loan less risky for a financial institution, it does increase the risk for business owners. This is because a valuable asset (often your family home or another personal asset) is used to secure the loan in the event that you are unable to make your repayments. With an unsecured loan, you are safe in the knowledge that whatever happens in business, your personal assets won’t be at risk.
Read ‘How to Get a Small Business Loan Without Collateral‘.
Unsecured business loans are easier to qualify for
Unlike secured business loans, unsecured loans have been designed so that they’re easier to obtain. In fact, many lenders (like Lumi) will consider your application if you’ve been running an Australian-registered business for at least 6 months, with a minimum annual turnover of $50,000.
Traditional lenders (such as banks) have much stricter lending criteria, putting many SME owners at risk of not qualifying.
Quick application and approval
Did you know that an unsecured business loan application can be approved within just 24 hours? Many small business owners require their funds as soon as possible and simply cannot wait the lengthy time frame that a secured loan through a traditional institution would take.
Additionally, a secured loan may require a business owner to sit down with their financial institution multiple times before they’ve even been approved. Unsecured loans through an alternative lender ensure that their application can be completed within less than 10 minutes online, giving the SME owner more time to focus on the running of their business.
A less-than-perfect credit history is okay
One of the biggest determining factors of a secured loan is the applicant’s credit score, but this doesn’t carry as much weight when applying for an unsecured loan. This is because alternative lenders try to be more inclusive with their lending, aiming to help as many small-medium enterprises as possible. Keep in mind though that the interest rate offered is a reflection of the risk a lender is taking. Therefore, those with a strong credit history are offered a more competitive interest rate.
Unsecured business loans are more flexible
Alternative lenders also pride themselves on being flexible with their funding, often allowing small business owners to repay their loan early without additional fees. Applicants often have greater control over the amount they need to borrow, as well as their repayment terms. Additionally, they can determine what aspects of their business require the fund, rather than having this dictated to them (which can be the case with secured loans).
There you have it – our top 5 reasons why small business owners prefer unsecured business loans to their secured counterparts.
Are you considering an unsecured business loan for your venture? Chat to Lumi today to by calling 1300 00 LUMI or fill-in our quick and easy application form to get started.
Very informative full of information blog you shared Melanie. Thanks for sharing!