Compare Unsecured Business Loans for New Businesses

Name: Unsecured Business Loans for New Businesses
Creator: Savvy
Published: 2021-12-06T10:12:16+10:30

Home > Business Loans > Unsecured Business Loans for New Businesses

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Written by , updated on July 26th, 2023

Can you get unsecured business loans for new businesses?

Yes, it is. While getting a loan as a new business can be a challenge, it is possible – and an unsecured business loan can potentially be one of the best options available.

When a lender is considering a loan application, one of the things they examine is how established the business is, how long it’s been successfully operating and how steadily it’s been trading. They also look at what its cash flow is like, how strong its customer base is and how visible the business is to its market. With a new business, however, much of this information is missing or doesn’t look great on paper. You’ll have very limited information on cash flow, your public visibility might still be quite low and your regular customer base is probably just getting started. All of this can hinder your loan application, so it’s not uncommon for a new business to get a loan application rejected by a lender. It’s important to not let this happen too often, as it’ll impress upon your credit file and may ward other lenders off for future financing.

The good news is that there are still possibilities for getting a loan – most notably, an unsecured loan. In Australia, unsecured business loans are among the most accessible loan products on the market – making them the loan of choice for a small business. That might seem strange, given an unsecured loan is one that doesn’t have any security or collateral in play, but unsecured loans have higher interest rates than secured loans. That extra interest provides a little bit of risk protection for the lender, meaning they can be more lenient when approving an unsecured loan.

As such, if your new business is on the hunt for finance, an unsecured loan might be the best place to start.

What do I need to think about when comparing unsecured loans for a new business?

When you’re a new business on the hunt for an Unsecured loan, there are a few questions you need to be asking as you consider each option.

How much money do I need? – The amount of money you can get from a loan will vary from lender to lender. You’ll need to work out how much money you want and how much you need – those two aren’t always the same figure. If the lender’s offer is a little on the frugal side, you’ll need to weigh up how far you can make that money go and consider other options if it’s not enough.
What cash flow can I reasonably expect? – This is hard to predict when you’re just starting, but it’s important to realistically assess how much cash flow your business might expect to see. It’s best to be conservative with that number and to make sure the repayments the lender is asking for can reasonably be paid off with the revenue you’re expecting.
How soon do I need to repay the money? – Unsecured loans are generally designed to be paid off within around three years and sometimes as soon as a few months. Lenders often offer some flexibility here, but normally within a range – so you might be able to choose any loan term up to around a maximum of five years. You’ll need to consider if your business is able to sustain debt over that time period and make sure you’re choosing a loan with a term that suits you.
Lender’s criteria – Some lenders have certain criteria a business needs to meet before applying for a loan – such as minimum length of time in business, or minimum cash flow. If your business doesn’t meet the criteria yet, you should be looking elsewhere.

When you’re comparing unsecured business loans, Savvy is a great place to be. You can quickly and easily compare a range of unsecured small business loans from some of Australia’s top online lenders with our rate table. You can easily set yourself on the right path with research on Savvy.

What information to I need to provide my lender with?

No matter who you end up applying to, your lender is going to need some information to process a loan application, and having those details ready will help things go more smoothly. Some documents you’ll want to have ready include:

A detailed business plan – When you’re a new business, you won’t have much of a trading history to show, so it’s going to be important to have a detailed business plan – the more thorough, the better. You may not be able to prove that your fast-food restaurant is doing well yet, for example, but you might be able to show that it’s in a high traffic area with hungry people where food outlets are scarce. A well-researched and thought through business plan will carry some weight.
Financial records – If your business has been in operation for at least a few months, financial records and details of your trading history to date are going to be important. If you can show regular business and a growing customer base even in the short term, a lender might find it easier to assume you’ll continue doing well over the next few years.
Personal documentation – Lastly, you’ll need ID and personal financial details, such as bank statements. When your business doesn’t have much of a financial track record, the lender will put more weight on your personal financial history.

Types of business loan

Unsecured business loans

The most common type of business finance, unsecured loans enable businesses to access the funds they need without attaching an asset to the loan as security. Some lenders may allow you to borrow up to $500,000 and, because there's no collateral, offer same-day approval.

Secured business loans

If your business already owns valuable assets, such as property or expensive equipment, you may choose a secured business loan instead. These loans may increase your borrowing power beyond what an unsecured loan can offer and, crucially, typically come with lower interest rates.

Small business loans

Business loans don't always have to be worth hundreds of thousands. If you're operating a small business and need a boost to help you keep on top of your expenses or expand your company, you may be able to take out a loan starting from as little as $5,000 and unlock further capital.

Low doc business loans

Just because you don't have all the required documents for a standard business loan doesn't mean you're out of options. Low doc finance enables you to use alternative documentation, such as other business financials, in the application process to access the funds you need.

Lines of credit

A commercial line of credit allows you to draw from your loan account whenever your business needs access to their funds, instead of managing a lump sum and repaying it like a regular loan. This can add flexibility to your finance arrangement, providing money when you need it.

Invoice finance

Invoice finance presents another option to business operators looking to free up cash through outstanding invoices yet to be paid by their customers. Your invoice finance can either be invoice discounting or factoring, which present different options when it comes to your invoices.

Equipment loans

A common reason for seeking out a loan is to purchase commercial equipment. You can do this either with an unsecured arrangement or one with the equipment itself as collateral, with the latter potentially increasing your borrowing power and lowering your interest rate.

Supply chain finance

With this finance, when your business purchases product, your supplier provides an invoice which you send to your financier and pledge to repay by a set date. From there, your supplier sells the invoice to your financier at a discounted rate, while you repay the full amount to your financier.

Inventory finance

Under an inventory finance agreement, your lender pays your supplier directly for inventory, which allows it to be signed off and sent to you. From there, you can pay off your debt within a pre-determined period to your lender, which may be longer than the regular debtor period.

Overdraft facility

An overdraft facility is attached to an existing financial account belonging to your business, such as a transaction or savings account, and enables you to borrow up to a set limit after the account’s balance reaches zero. These overdrafts are repaid with interest, but only on what you use.

Cash flow loans

You may simply be in a position where your business needs a boost to its cash flow. If this is the case, there’s a range of stop-gap solutions which may be suitable for your situation, from standard unsecured loans to specialist cash flow loans, invoice finance or even an overdraft.

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Frequently asked questions about unsecured loans for new businesses

Do I need a deposit to get an unsecured loan for a new business?

No – an unsecured loan doesn’t normally require collateral or a deposit of any sort. However, if you’re in a position to do so, offering a deposit might help you a little with getting approved and potentially improve the terms you’re offered. It can improve a lender’s confidence to know you’ve got something invested in the loan. Talk with your lender to see if a deposit might help your application.

Are there specialised loans for setting up a brand-new business?

Yes – there is such a thing as a startup loan, which specially tailored for setting up a new business from scratch. These are designed around the expectation that your business will have no credit record or financial history at all – and many of them require you to provide either a deposit or some security from your personal assets. If you’re still at the very beginning of the process of setting up your business, they can be a good option to explore.

Is there a difference between new businesses and start-ups?

Yes – broadly speaking, a startup is a kind of new business and it’s not unusual for the two terms to be used interchangeably to talk about any business that started in the last few years. However, the term startup technically refers to a newly formed business (often one with rapid growth) that’s still developing its product, while “new business” is more broad – meaning just what it sounds like. Startups can still be approved for finance without collateral, however.

Can I expect a good interest rate on an unsecured loan for a new business?

Probably not – in Australia, a new small business isn’t going to get the best rates on an unsecured loan. Starting a business always comes with some risk of failure, and for a business lender that translates into higher interest rates – to offset that risk

Does being a sole trader affect whether I can get unsecured loan for a new business?

Not usually – a sole trader is generally a perfectly valid type of business when it comes to lending. It will normally mean the whole process of building your business plan and applying for the loan falls on you, of course – which can make it harder.

Can I apply for multiple unsecured loans at the same time?

This is a very bad idea – each time your business applies for a loan or some form of credit – whether it’s approved on not – it's reported to credit authorities and causes a dip in your credit rating. While one application isn’t likely to make a world of difference, applying for many loans in the hope one will get approved will make your business’ credit score drop pretty fast and lessen your chance of getting any loan approved