Small Business Guides

Seven things to look for in an unsecured business loan

6 min read

Growing a business often takes blood, sweat and tears. And sometimes you’ll also need a loan to speed things up. But with so many lending options out there, how do you find the right one? We spoke to Moula, the unsecured business loan specialists, about what to look for.

Why you might need a loan to grow your business

Different business have different attitudes to loans, lending or finance. You may have borrowed money successfully before to reach your current position. Or maybe you feel like the time to borrow is now. Although a loan can be a risk for your business, sometimes it’s one worth taking. Using a loan for the right reasons, at the right time, can take your business to the next level say the experts at Moula. Common reasons for business loans include to:

  • Gain more space or a second site
    Your business may have outgrown your original site, shop or office. Maybe your current location works well but it’s time to expand into a second or third site.
  • Improve your credit record
    If you borrow once and borrow well this can open the door for larger loans in the future. It can improve your credit rating if you’ve proven you can pay off a loan – even a small one. Maybe in a few years you might want borrow a lot more. It may be harder to secure without a good repayment record.
  • Get new or specialist equipment or inventory
    Nearly every business needs new equipment, stock or gear at some point. Sometimes the only way to increase productivity or profitability is with newer, more efficient technology. Whether you’re a manufacturer or a services business, the equipment you use today will almost certainly be different in a few years.
  • Take advantage of an opportunity where the benefits outweigh the costs
    Sometimes a new opportunity comes along that surprises you. A new market opens up, a new business relationship forms or a new discovery means you have to move fast. When opportunity knocks a loan can help you make the most of it.
  • Hire new or better staff
    Most business owners agree that their people are their greatest asset. And it’s hard to find and retain good employees. Don’t lose your best people because you can’t afford to keep them. That could be a very big investment walking out the door!
  • Cash flow
    Sometimes it’s not a lack of profit, but cashflow that tips small businesses over. If a lack of cash could put you out of business, use a loan to cover the shortfall.

Where to apply for small business loans

Until recently, the traditional sources for business loans were the high street banks. But banks are often slow, bureaucratic and difficult to deal with – especially for small businesses. Based on a recent survey, it can take up to 20 days for a bank to approve a small business loan and 80 percent of applications are rejected.

New lending products are disrupting the market

Because it’s difficult for small businesses to access working capital, several alternative lending solutions have emerged in the market. They offer you a smarter online application processes. They quickly analyze your business data and can approve your loan within 24 hours. This gives you immediate access to the capital you need.

There are many online lending options to consider. But you need to proceed with caution. The wrong loan might be too costly. And if the loan amount is too much, or the repayments are structured the wrong way, it could be fatal for your business.

One of the modern lending options to consider is an unsecured business loan.

What is an unsecured business loan?

Unsecured business loans don’t require any collateral from you or your business. Getting this type of financing, and how much, depends on your business’s revenue or creditworthiness.

If you were taking out a normal bank loan, you’d need collateral – a business asset you could ‘borrow against’. This means if you couldn’t pay the loan back, the bank could take your asset(s) instead of payment.

Unsecured business loans aren’t guaranteed by any type of property, so they’re a bigger risk for lenders. They normally have higher interest rates than secured loans. But they can also provide bigger loan amounts and more flexibility.

Unsecured business loans can range from $5,000 to more than $500,000 depending on the size of your business and your credit rating. Here are the important things to look out for:

1. Interest rates you understand – with no surprises

Pricing is one of the most crucial factors to consider as many lenders charge more than most businesses can afford to pay. Beware of lenders who don’t disclose their rates or give you pricing you can’t understand. Look for a simple, transparent agreement which clearly shows the interest rate that applies to your loan balance.

2. A technology platform that fits your business

Look for a platform which can automatically review your business data and give you a decision in real-time. Traditional loan providers might use online forms to capture your details but this information is still processed manually. You could be waiting weeks for an answer. Find yourself an online loan provider who uses smart technology to make decisions. You won’t waste time waiting for approval.

Because it’s difficult for small businesses to access working capital, several alternative lending solutions have emerged in the market.

3. Excellent customer service

Business loans can be tricky to apply for and you don’t want to waste your valuable time. Look for a loan provider who is informed and always available to answer your questions. You should be able to pick up the phone and have someone guide you through the process.

4. No penalties for early repayment

You might need an injection of capital to buy inventory before a busy season. Or you might just need a loan for a couple of months and be ready to pay it back straight afterwards. But many loan providers will charge you a penalty for early repayment. Look for companies who don’t penalise you for being responsible and aren’t out to punish you with sneaky fine print.

5. Hidden fees

When comparing loans, interest rates are important, but they’re not the only factor. Beware of hidden fees such as establishment fees and direct debit fees. These are just extra costs. Choose loan providers who charge for what you owe plus the interest, and nothing else. And look for loan comparison calculators to help you see which lenders come out cheapest.

6. Credit checks

Make sure that your loan provider will get in touch with you before running a credit check. You must give your consent. And make sure they only run a credit check when you're ready to borrow.

7. A simple and transparent application process

Don’t become stuck in a process which lasts weeks, only to end up being denied funding. Here’s what you need to know about the application process:

  • how long it will take
  • what you’re going to need
  • who to talk to (get a regular contact – not a new person each time)
  • how long it will take for the money to come in.

The business lending market has changed – make sure you’re calling the shots

In the past, it was hard for a business to borrow money. Banks called all the shots. You had to complete lots of documents to prove your worthiness. And even then there were no guarantees. Other lenders emerged on the market, but they often hid behind unreasonable terms and conditions. And they hid the real cost of borrowing behind extra fees.

But things have changed. Unsecured business loans from lending specialists mean you can get quick, easy access to capital to help you grow. So you can focus on what you do best – running your business.