Unsecured business loans in Australia are an important source of finance, especially for small businesses. We all know how tough it’s been for most businesses in Australian since COVID-19 hit in 2020. Business finance is more important than ever before, with some insolvency experts tipping that tens of thousands of Aussie businesses could collapse with the end of JobKeeper.

It doesn’t have to be that way. Read on to find out everything you need to know about unsecured business loans, including:

  • what they are.
  • the benefits.
  • why you’re more likely to get unsecured finance from a private lender than a bank.
  • answers to other FAQs.

What is an unsecured business loan?

An unsecured business loan is a short-term finance option that doesn’t require you to provide any assets to your lender as security. Terms can be as little as a few months up to two years.

Unsecured business loans are the opposite of secured loans, which does require you to put up assets as security. In finance terms, security assets are known as ‘collateral’.

What are the benefits of an unsecured business loan?

An unsecured loan is:

  • Less risk for you and your business

That’s because your lender won’t ever be able to repossess any of your assets. With a secured business loan on the other hand, your collateral assets can be repossessed and sold by your lender if you fall behind in your repayments.  That could include assets like business vehicles, equipment and real estate property. If you lose those assets due to cash flow issues, you mightn’t have a business anymore.

  • Quicker to get approved

Secured business loans often have a more time-consuming application process, including independent valuations of your assets. You can skip that process when you apply for an unsecured loan.

  • Allows you to exploit short-term business opportunities without tying up your assets

For example, you can use an unsecured business loan to:

  • buy stock to generate more revenue and profits for your business.
  • for working capital to help your business to operate day-to-day.
  • to refinance multiple debts to make your repayments easier to manage.
  • to help with any short-term cash flow issues.
  • helps you to build trust with your lender and boost your credit score

Paying off an unsecured business loan shows that you’re financially responsible and will increase your chances of getting more business finance quickly and easily approved.

  • is often the only option for startup businesses

Startup business loans in Australia are notoriously hard to get. If you’re a start-up business, you probably won’t have the assets to qualify for a secured loan. An unsecured startup business loan is often the only option for budding entrepreneurs.

Which banks offer unsecured business loans?

Banks in Australia are risk-averse, which means it’s harder to get an unsecured loan with them. They would much prefer you to get a secured loan so that there’s a risk for your business, but not to them.

Even if you do find a bank that offers unsecured business loans, you’ll usually find it tough to get the finance you need quickly for two reasons.

1) Their lending criteria are very tough, especially post COVID-19.

Banks are still going to be gun-shy to approve unsecured business even with government incentives to try and stimulate business lending post-COVID-19. They won’t relax their lending criteria because their number one priority is their shareholders, not their business loan customers. Unsecured business loans post-COVID and post the Banking Royal Commission will be just as hard to get, especially small business loans.

Evidence of this is the very low bank take-up rate of the federal government’s $40 billion SME Guarantee Scheme. This Scheme was supposed to stimulate bank approvals for unsecured loans. However, within the first 6 months of the Scheme, Australian banks had only approved $1.5 billion worth of the $40 billion worth of funds on offer. That’s less than 5% of total funds approved, and it’s a direct result of banks’ tough lending criteria.

2) Their application process is time-consuming.

Some banks can take up to two months to assess an unsecured business loan application! In the fast-paced and global business world we live in today, that’s simply not good enough.

Banks usually require detailed financial statements, reports and business plans when you apply. The process itself can be enough to put you off. We know that your time is valuable so we won’t waste it.

How do I get an unsecured business loan?

The private lending market is an alternative to getting unsecured business finance from banks. Private lending is a rapidly growing sector of the lending market. Private lenders are also much more likely to approve an unsecured business loan quickly.

At DFS, we arrange private loans for our business clients around Australia. We have:

  • simple online applications
  • a network of over 200 private lenders
  • fast approvals and settlement
  • highly personalised service.

We can provide unsecured business loans for sole traders and small-to-medium-sized organisations. Our loans are legal contracts between our clients and our private lenders. All loan documentation is provided upfront so there are no surprises.

How much can I borrow?

This depends on your business and how much you can afford to repay. The more you can afford to pay, the more you can borrow (and vice versa). If you can provide us with your business financials, we can help you work that out.

We can also take into account your business cash flow with flexible loan repayments. We understand what it’s like to be in business, and we’re just as keen for you to succeed as you are. Our private lenders are too.

How do you qualify?

It’s important to have a few fundamentals in place before you apply for unsecured business finance with us.

  • Your business should have an Australian Business Number (ABN) or an Australian Company Number (ACN) if you’re a company.
  • Your business should be registered for GST.
  • It will increase your chances of approval if you have been in business for at least six months or more and you can show sales revenue.

If you can provide us with that base level of information, we can take care of the rest. We may need to do a credit check, but we may not.

Of course, if you have a good credit history, feel free to let us know as it may open up more private lenders to you. You can check both your business and personal credit score for free in Australia with credit reporting agencies like Equifax. Making an enquiry about your credit score doesn’t negatively affect it in any way.

How long does it take to approve?

You can apply for unsecured business finance with us online. We can usually assess your application within a day. When we match you with one of your private lenders, you can usually have your unsecured finance within 24 hours. We understand that ‘time is money’ in business and that opportunities don’t wait.

What is the interest rate for an unsecured business loan?

Interest rates on private loans depend on your individual financial circumstances. Interest rates on unsecured business loans are higher than secured loans. However, it’s important to do a cost-benefit analysis. The alternative to not getting your finance approved could be the loss of your business or a missed opportunity.

Paying a higher interest rate to get quick access to the finance you need could be the difference between surviving or not. It could also help your business to thrive if you can capitalise on an opportunity before your competitors do.

Case study – the bank goes missing in a time of need

lady confused about unsecured business loans
It's easy to get a loan with DFS.

One of our business clients in Victoria heard about the federal government’s unsecured business loan program in 2020. She contacted her bank for some desperately needed funds. It would seem she ticked all the boxes:

  • she had a solid, growing business prior to COVID-19
  • her business was affected by the harsh lockdown
  • she had additional costs in implementing post-COVID-19 safeguards
  • she had a good credit history and a long-standing business relationship with her bank.

However, she was surprised that all her bank wanted to talk to her about when she contacted them was a secured business loan using a house as security. She doesn’t even own a house. It seems that when her business needed her bank the most (and for reasons she simply couldn’t control), they weren’t interested in helping her.

Incredibly frustrated, she turned to us for help. We approved the funds she needed within 24 hours. We matched her with a private lender who understood that she had a solid business and was simply the victim of unprecedented short-term circumstances.

Her business is now back up and running and her turnover has increased as the restrictions have eased. She’s vowed never to borrow from a bank again. And who could blame her?