An unsecured loan is a form of flexible borrowing that does not require collateral in the form of property, equipment, or machinery to provide the borrower with immediate access to funds. Unsecured business loans are a good option for companies, not just those with limited assets, because they don't require collateral.

How Can I Get an Unsecured Business Loan?

In the United Kingdom, unsecured small business loans are widely available. A financial broker, online lending marketplaces like Funding Options, or traditional high street banks are all viable options. You should have the following documents to speed up the process: proof that your company has been registered in the UK for at least six months and that your monthly revenue is at least £5,000.

• Recent business current account statement
• Accounts filed with HMRC
• 6-month annual returns (profit and loss accounts)
• Personal guarantee from a director
• 6-month trading history

Why Should A Company Consider an Unsecured Loan?

An unsecured business loan may be just what your company needs in certain situations. The advantages of an unsecured loan are as follows:

1. Unsecured Business Loans Don't Require Collateral

Loans are often secured by tangible assets such as real estate or automobiles or intangible assets such as investment portfolios or corporate trademarks. However, there might be better moves than putting up assets as collateral. If you're worried about the lender foreclosing on your home if things go south, you might not want to use your mortgage as collateral. It's also possible that you've already pledged the maximum amount of collateral with your assets. An unsecured loan requires no collateral and is secured solely by your creditworthiness.

2. You May Receive Your Money Faster with an Unsecured Loan

An unsecured loan could be processed faster because the lender doesn't need to conduct an asset appraisal. Getting an unsecured loan accepted and funded in a single business day is possible.

3. Unsecured Loans May Be Discharged in Bankruptcy

The unsecured loans may be dischargeable in bankruptcy. (Before filing for bankruptcy, research your state's laws.) In contrast, with secured loans, you risk losing the collateral you put up for borrowed money.

Types of Unsecured Business Loans

Merchant cash advances, overdrafts, revolving credit facilities, and credit cards are alternatives to conventional business loans. If you have numerous overdue customer invoices, you may want to look into invoice financing, which leverages your accounts receivable as collateral; however, because customer invoices are presented as collateral, this type of loan is not an unsecured loan beyond the scope of this article.

1. Merchant Cash Advance

In exchange for a cut of future credit card receipts and a fee, a merchant cash advance is an unsecured loan. Businesses that routinely accept client credit card and debit card payments often turn to merchant cash advances to control cash flow. Since the lender can see how much money is coming in and leaving your company, stringent credit checks and collateral are optional. As a predetermined percentage of monthly sales, the company only makes payments it can afford. If business slows, the lender's take is reduced, giving you more control over your working capital.

2. Revolving Credit Facility

Revolving credit facilities are a form of unsecured lending that allows business owners to borrow funds as needed for working capital and other purposes, pay them back, and then borrow again. Because of this, a revolving credit facility is an adaptable method of borrowing that does not require collateral.

3. Business Overdraft

An overdraft is a line of credit extended by a bank to a company to provide emergency finance. Interest on an overdraft is calculated only on the actual amount that is overdrawn, in contrast to the fixed interest and repayments of a company loan. When your company's cash flow is positive again, you can repay your overdraft. With the lender's OK, you can request an increase in your overdraft limit to better suit the needs of your business.

4. Business Credit Cards

Credit cards issued to businesses can be used to pay for operational expenses whenever and wherever needed. Company credit cards provide a convenient kind of revolving credit for expenditures that can be paid off within one to three months. But if you are racking up debt that may force you to carry sums for more than three months, consider other options for financing your business.

Pros and Cons of Getting an Unsecured Loan

Business owners who weigh the benefits and risks of unsecured loans may conclude that this type of financing is ideal for their operations. It could work to your advantage if you look for the best terms and invest the money wisely.

If, on the other hand, the only loan you qualify for is a high-interest, high-fee unsecured one, or if you have any reservations about your ability to repay the loan, you should look into other options. Taking on debt that could put you in a better financial position is always a good choice.