No Collateral? Here's How Unsecured Business Loans Work

Nicki Ghazi

Tuesday, 11 February 2020

When cash flow is tight, or a shiny new gadget is on the wishlist, many small businesses wonder whether they’ll be approved for finance. Most business loans require collateral (property or an asset your business owns) to secure against the loan, meaning that if you default on your loan, your lender will take that collateral and use it to cover any losses incurred.

Collateral often takes the form of a property, vehicle or piece of equipment. But what if you don’t have these assets on hand or your vehicle is already being financed? After all, not every small business has the luxury of working in their own office space, or with their own equipment. These things take time, and you have to start somewhere!

That’s why unsecured business loans make a great alternative to secured ones, as they are not directly tied to collateral. Let’s look at how they work and more importantly, how unsecured business loans could boost your business.

How do unsecured business loans work?

An unsecured business loan is similar to any other business loan, with one key difference: collateral is not required as security. But without collateral, how do lenders decide whether to approve your loan application? Surely they don’t put all their faith into every small business.

Lenders determine how trustworthy you are based on past financial habits—they’ll look at your credit history and whether you’ve been able to make repayments on time and in full. If you have a good credit score, you’ll likely have a higher chance of getting approved for your unsecured business loan, assuming you’re eligible. In addition to assessing your credit history, a lender will request your transaction history and potentially other documents such as financial reports. Upon approval, a personal guarantee is usually required. Essentially, this is a promise made by the borrower that they (usually the director/s of the business) will be personally liable in the event of default.

But without collateral, there’s still a high risk involved for your lender in allowing you to borrow money, no matter how good your financials or credit history may be. Because of this added risk, you’ll likely face higher interest rates.

This is something to consider before taking out an unsecured loan. But, for many businesses, the reward is worth the risk. When you take out any business loan, you do so with the intention of making every cent back, and more! The cost of not doing anything could be greater than dealing with the issue at hand—whether that’s improving cash flow or making an investment that will grow your business over the long-run.

But finding the best business loan for your needs is another story. A Valiant product specialist can help you decide if taking out an unsecured business loan is the right move for you. Our team is here to help you navigate the complex world of business finance, and we want to see you grow. Check out our customer stories to see how we’ve helped customers succeed in the past.

What can an unsecured business loan be used for?

Unsecured business loans can be used for any business-related needs, such as:

  • Improving cash flow
  • Purchasing a new property or asset
  • Renovating your space or moving to a bigger & better space
  • Upgrading tech or other equipment
  • Purchasing inventory
  • Expanding your product offering
  • Improving productivity / day-to-day operations
  • Creating and optimising marketing campaigns
  • Building out a new website
  • Hiring new staff or resources
  • And much more!

Where can I get an unsecured business loan?

Taking out a business loan is a decision that requires careful thought and consideration. It’s not a decision to be taken lightly, but at the same time, it could propel your business into huge success—the key is finding the right funding. But there are hundreds of loan products out there and they aren’t created equal. You’ll want to find a business loan with minimal risk, attractive features and reasonable interest rates. It’s worth noting that the ideal loan looks different for every business.

Contact a Valiant product specialist to find the perfect unsecured funding solution for you. Our Sydney-based team is well-versed in everything business finance, helping Aussies in all sorts of industries, from hospitality and retail, to construction, transport, medical and more. Chat to us for a comprehensive overview of 80+ lenders to find a great business loan that works as it should.


Nicki is our Senior Working Capital Manager. She works with a team of talented product specialists, leveraging 25 years combined experience to help Aussie businesses find tailored finance solutions.

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