An unsecured loan is a funding solution that is issued based on the borrower’s creditworthiness, and hence requires no personal or business assets as collateral or security. For instance Josh, who runs a small bakery in Sydney, and needs funding to cover his operational costs. Here are five key reasons why unsecured business loans are the perfect solution for his SME.
Many traditional lenders, such as banks, seek collateral as security for the loans they offer. Popular forms of collateral include property, cars, and equipment. Josh does not have any assets other than his home to offer as collateral. He does not want to risk losing his family home in the event he can’t repay his loans – losing both his home and his livelihood. However, an unsecured business lending assures him of the safety of his personal assets, regardless of the performance of his bakery’s business.
Easy Qualification, Quick Approval
In addition to collateral, most banks have strict qualifications for loans, such as two to three years of profitable trading history and a high minimum turnover. And Josh’s newly established bakery simply does not qualify. Furthermore, applying for a traditional loan is a long process. Josh will have to meet with financial representatives, provide a business plan and financial statements, and answer detailed questions about his business operations. In contrast, unsecured loan applications can be made online and require far fewer supporting documents. While banks may take weeks to approve a loan, online applications provide an instant decision, or a quick phone call with an advisor, and a decision within days.
Josh cannot afford to spend time on lengthy loan applications and the collation of supporting business documents. He would much rather focus on growing his business. Quick unsecured business loans give him a hassle-free solution, while helping him maintain a healthy cash flow at his bakery.
Lenient Credit History
Traditional lending institutions often prefer lending to customers with high credit scores. Credit unions, however, are less strict in their requirements, but Josh will need to be a member of one in order to qualify. Therefore, online lenders are the perfect solution, since great credit history isn’t a prerequisite for qualifying for a loan. Alternative lenders offer flexible interest rates based on the risk they need to take – a better credit rating will mean lower interest rates.
Flexibility and Convenience
Alternative lenders are dedicated to the success of SMEs and are flexible with their funding. They are willing to work with applicants’ particular business models, offer more control over the borrowed amount, and allow applicants to choose their interest preference – fixed, variable, or a combination of the two.
Applicants are also given control over loan repayment terms, and what parts of their business require funding. Unlike traditional lenders, unsecured funding allows applicants to repay their loans early without charging added fees. This greatly benefits Josh because his bakery business is seasonal. He can negotiate a repayment schedule that allows him to make additional repayments during the peak winter season, but reduced payments when business is slow.
In conclusion, alternative lenders offer Josh the security, speed, and personalisation that other financial institutions like big banks do not. Alternative lenders offer timely capital that can be the difference between Josh growing his bakery business, or shutting it down. He is free to use his loan to purchase stock, hire staff, expand to a prime location, purchase equipment, or generate working capital. Keeping this in mind, an unsecured loan provides him with unparalleled opportunities to achieve his growth targets, without any risk to his personal assets.