Unsecured Small Business Loans
Unsecured business loans are used for starting a business to cover cash flow and inject working capital and expand existing businesses in the longer term.
An unsecured business loan are loans that are not secured on any asset for a limited company or personal assets such as a house if you are operating a business as a sole trader.
This means if the person taking the loan defaults no assets can be taken in payment of the loan and the person is personally liable for making any repayments. These types of loans are normally short term in nature and last for one to three years and are generally under £10,000. Most unsecured loans are provided by the major banks although there are plenty of other institutions and brokers that can assist in getting the cash for your business.
Why get a small business loan ?
Almost all new businesses need working capital or cash flow in the first few months (or first year) of operating to cover the start-up costs of perhaps purchasing new stock, machinery or other assets to kick start the business in the early stages. When businesses are operating successfully they may need some short term loan or overdraft facility if the sales revenues are not being paid on time and they need to pay some invoices or salaries.
Some businesses rely on this type of short term lending exclusively to operate on a daily basis but most new businesses should pay off all loans after two years or so.
Purposes for business loans
Unsecured business loans can be used for almost anything for starting a business. Some circumstances the cash can be used for are:
- Purchasing stock
- Paying wages and salaries for employees
- Buying land or office premises
- Purchasing plant and machinery
- Renovating office space or warehouse space
- Purchasing assets
- Buying other companies and their assets
- Business expansion
Most loan companies including banks will consider all circumstances and they will require an up to date and current business plan to asset the risk for new business loan applications.
Searching on Google will bring up many unsecured business loan providers but many will want to charge you an interest rate that could be three or four times the current bank base rate which could make it expensive to operate such a loan.
For unsecured loans the risk is higher so the charges will be higher. Secured loans are less risky for the lender because if the company defaults on the loan they have a charge over an asset - whether it belongs to the company or the individual if the company is in fact a sole trader.
Other loan providers can help getting unsecured business loans if the business owner has an adverse credit history (for example CCJs, IVAs or a short term history of self employment) - as the risk is higher the APR or annual percentage rate of interest will be higher - sometime on a par with credit card interest rates.
It's best to shop around for the best deal to compare quotes and details of interest rates.