Unsecured loans allow you to borrow money for your business without putting up any assets as security. It may be that your assets are already tied up as security, or that you don’t have assets of sufficient value for the loan.
The short-term nature of the loan partly mitigates higher risk of default borne by the lender, but nevertheless this usually ends up being a more expensive option for the borrower.
Of the National Association of Commercial Finance Broker’s (NACFB) panel of 145 lenders, just 26 carry out short-term unsecured lending. So it is still a minority of lenders who will offer this service. Generally speaking, you will find it is the so-called alternative lenders who are more likely to specialise in unsecured lending.
Adam Tyler, chief executive of the NACFB says that lenders will pay close attention to personal credit history, so it’s important to make sure yours is in good shape to make an unsecured loan viable for your business.
‘They are also more likely to work with established businesses and may turn down approaches from new start-ups. The borrower will need to work harder to demonstrate an ability to make repayments,’ he adds.
A secured loan will be cheaper to repay in the long run, and there will be a wider range of choices. However, if that is not an option for your business, it is reassuring to know that there are so many new lenders offering unsecured commercial loans.
‘We would always recommend the use of a commercial finance broker who will be able to guide you directly to the right lender, once they understand the nature of your business and your ability to meet the more stringent criteria for the loan,’ says Tyler.
Unsecured funding for a secure future
Rob Davies, co-founder of Business Doctors says that while growing a franchised network of small business consultants, the company has benefited from short-term, unsecured funding.
One funder allowed the company access to a pot of £30,000. ‘We can dip in and out of it to help with our cash flow and we only pay interest on the period of time we are borrowing the money. So if we need a cash boost for just two days, that’s all we pay for.
Another short-term unsecured loan that has helped the company hugely was for £100,000 last year, which was approved within three days, and he had the cash in the business account within the week.
Suzanne Noble, founder of app Frugl applied for an unsecured start-up loan via Virgin Start-Ups, part of the government’s Start-Up Loan scheme. Although the website implied that the loan could be granted within ten days of application, the reality was that it took three months.
‘In fact, our loan manager had to go to the director of Start-Up Loans to get the money approved as our business didn’t really fit in with the types of businesses they fund, as we were revenue-generating from day one,’ she says.
Noble needed the money to transition the business from being a curated iOS app of low-cost events in London to a marketplace that would enable businesses to be able to list, manage and promote their events and be featured on mobile apps and web app.
‘The process was by no means straightforward,’ Noble says. ‘We had to put together a comprehensive business plan, financial forecast for three years and also submit bank statements going back months, ID and more. It was lot of paperwork and I would imagine that many people would find it onerous, especially if they asking for smaller amounts.’ However, she adds that it was worthwhile in the end.
Ryan Butcher, of Leatherhead Van and Truck Rental, came to Boost Capital for his business funding and had a completely different experience. He says, ‘Initially we looked at such avenues as the smaller banks and peer-to-peer lending. The problem is, while our company has a very good reputation, the motor trade in general doesn’t. We ended up getting a loan from Boost Capital. I’d definitely use them again. I was very impressed by the speed of the transaction.’
A short-term funding solution
Boost Capital is one example of a short-term lender that offers unsecured loans for SMEs in the UK whose businesses are growing or have the potential to grow. These companies can offer funding in as little as two days.
See also: How to get a business loan in 5 steps A simple plan to help you secure a loan for your company.
Looking for finance? SmallBusiness.co.uk is working in partnership with trusted lenders to find the best business funding deals. Find out more here.