Pros and Cons of Unsecured Business Loans: Are they right for you?

Nicki Ghazi

Thursday, 13 February 2020

Whether you’ve run into cash flow issues, or simply need a hand in keeping day-to-day operations running smoothly, an unsecured business loan could help you achieve your business goals.

They can be particularly suited to small businesses during their growth phase. Here’s why.

Benefits of an unsecured business loan

No need for collateral

Collateral is a form of security. When taking out a secured loan, lenders will require some form of security in order to justify the risk involved in lending to you. Collateral can take the form of any valuable asset that you own, including equipment, a company car, property, etc.

If you happen to default on your loan, your lender will use the collateral to make up for any losses incurred.

The issue is, not everyone has an asset readily available to offer as collateral. If you’re a start-up, or new to the market, chances are you’re still dreaming of a snazzy office space... You don't have one to offer up. The benefit of an unsecured business loan is that you don’t need to provide collateral.

Instead, your lender will look at things like:

  • Your credit score
  • Your credit history
  • Your bank statements and financials
  • How much money you’re looking to borrow

Be prepared to explain how you plan on successfully repaying the loan back on time.

No need to offer up any assets from the get-go

With an unsecured business loan, there’s no need to worry about sacrificing your property, or other assets, at the time of application.

However, it's important to note that most unsecured lenders will take personal guarantees from directors or shareholders within your business. This means that if you were to default on your loan, you (or the director/s of your business) would be personally liable.

Applications are quick and easy

Applying for any loan can be a long and daunting experience. Lenders need to be confident that you’ll be able to repay your loan back on time and in full.

But they don’t know you or your business (yet). Often, extensive vetting is required, and in the case of secured loans, your collateral will be evaluated in order to determine it’s true value.

With an unsecured loan, you’ll skip this long winded process. Our dedicated product specialists will get to know you and your business upon first contact, seamlessly collect your information and streamline the process. Expert industry knowledge in tailoring your solution will further enable a fast approval and settlement of the loan. You could even receive funds in as little as 24 hours! For this reason alone, many businesses opt for unsecured loans with Valiant.

Paying off an unsecured loan can build trust

Getting approved for finance is all about trust. The more you have to show (assuming your credit history is positive), the better.

Taking out an unsecured loan and successfully chipping away at it can help to build your trustworthiness in the eyes of lenders. It’s great for building a positive credit history and improving your credit score. You’ve also proven yourself responsible and stable enough to commit to your repayments, hence increasing your chances of being able to borrow more money in the future.

Disadvantages of unsecured loans

Higher interest rates

All great things come with a cost. Unsecured business loans may seem too good to be true on the surface, but they do come with higher interest rates. From a business point of view, lenders need to justify the risk involved in approving your application without collateral, which is why they’re more expensive to take out. The speed of the unsecured loan process also contributes to the lenders’ higher set up fees, however, Valiant will assess your situation at no cost!

The higher interest rates that typically come with unsecured loans is something to consider, but also keep in mind that not seeking finance can come at a cost too. And an expensive one, at that.

Product specialists at Valiant can help you find the best business loan for your needs, based on their trusted panel of 80+ lenders. If high interest rates are of concern, your product specialist can help you determine the return on investment you could expect from taking out an unsecured loan. You’ll also get a snapshot of quotes that can easily be compared side-by-side.

Smaller loan amounts and terms

Lenders normally aren’t willing to approve huge loans for businesses with no collateral. Doing so would drastically increase the level or risk they’d be dealing with. Often, this means you’ll have to make-do with a smaller loan term, which isn’t necessarily a bad thing, depending on how much cash you need.

Unsecured financing could be a great option for businesses that need smaller cash injections, but may not be the best option for those who are looking to make major investments like buying a new property or large piece of equipment.

Strict eligibility requirements

Without your personal assets at stake, there are tighter eligibility requirements you’ll need to fulfil during the loan application process.

Lenders need to make sure that an unsecured business loan is a good fit for you in order to minimise risk. You’ll need to have a clear credit history along with a regular revenue stream.

At the end of the day, being approved for finance comes down to how trustworthy you are with credit. If your lender is confident in your ability to make timely repayments, you’ll have a good chance of being approved!

Sign me up! Where can I get an unsecured business loan?

If you’re interested in business finance, Valiant is the place for you. We work with over 80 lenders, from big banks to small fintechs, to find a solution that will fulfil your business objectives. Enquire about unsecured business loans today to find out what you qualify for without impacting your credit score whatsoever.

Our product specialists will do all the heavy lifting for you, from application through to settlement.


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.

Related Posts

How retail businesses can benefit from a Merchant Cash Advance

Grow your business with a little help from your future sales. Find out more about merchant cash advances, a unique form of business finance.

Should you refinance your business loan? Here's what you need to know

Refinancing could help you lock in a lower interest rate, on better terms. But should you do it? Here’s everything you need to know before sealing the deal.

Top 6 questions we get from clients on COVID-19

Check out the top six questions about Coronavirus we had from clients last week. Here's how Covid could impact your ability to get a loan.

Unsecured business lending: Are you eligible?

Your chances of getting approved for unsecured business finance depends on these 12 factors. Click to learn more.

Guide to franchise finance [2020]

Click here to learn about your franchise finance options, and compare loans from 80+ Aussie lenders.

What to look for in a business lender: 7 factors to consider

Choose wisely with these 7 green flags to look out for.

Time is money: What you need to know about bank business loans

Time is money. That’s why you should think twice about which bank to go with for your business loan. Or whether you should go to a bank at all...

Denied business finance? Why Aussies are turning to non-bank lenders

Denied business finance? What now? Here’s why Aussie business owners are turning to non-traditional lending solutions, and succeeding.

Top 3 reasons businesses choose secured finance

Take advantage of lower interest rates and greater borrowing power with secured business finance. Click to learn more.

5 Reasons to take out a business line of credit

A line of credit can take a huge load off your shoulders as a business owner. Click to learn why.

Unsecured vs. secured business loans: Which one is best?

Click to find out whether a secured or unsecured loan suits your business best, and easily compare finance solutions with competitive rates.

Pros and Cons of Unsecured Business Loans: Are they right for you?

Find out whether an unsecured business loan is right for your business, and compare loans from 80+ lenders.

No Collateral? Here's How Unsecured Business Loans Work

Need cash but don’t have collateral? An unsecured business loan might be your answer. Click here to learn more and make your best business move yet.

What is commercial finance and which type is right for you?

Click here to find out which type of commercial finance is right for you, and contact a product specialist to get funding, fast.

Announcing Valiant's $12.5m Series B Funding

Valiant Finance are pleased to announce that we have secured $12.5 million in our Series B equity funding.

Business Loan Checklist: 5 Things Every Small Business Owner Should Do

Don't get caught out. Here's your Business Loan Checklist to put you in the best position to find funding for your business.

How To Apply For An Unsecured Business Loan

Your guide to applying for an unsecured business loan and helping your business grow.

Applying For A Business Loan? Be Ready To Answer These 4 Questions

Put your best foot forward by preparing strong answers to these 4 questions.

How To Find A Great Loan For Your Small Business

A little preparation goes a long way. Get ahead on the finance front with our quick tips to help you with the 3 key areas of your loan application.

How To Get Your Business Set-up on Social Media

Want to reach your customers online? Are you ready to digitise your small business? First up: get smart about social.

How To Find The Right Loan For Your Small Business

Every business is unique. Every business loan is different. What features are most important to you? Consider these 4 things before applying for finance.

5 Hidden Business Loan Fees To Watch Out For

Don't get caught out. Here are 5 hidden fees and charges that could apply to your small business loan.

How To Compare Business Loans Across The Market

You've explored your business finance options. What do you do next? How can you be sure you're comparing loans effectively and getting the best deal?

How To Unlock The Cash In Your Unpaid Invoices

Are unpaid invoices causing cashflow problems for your small business? Invoice financing may be the answer.

What Is A Director’s Guarantee And Why Is Everyone Asking Me For One?

You're applying for loans, you start getting positive responses, and suddenly you're asked for a guarantee. Don't sign until you read this!

Could Debtor Finance Solve Your Cash Flow Concerns?

Are you invoicing your B2B customers with longer payment terms? Is it hurting your cash flow? Debtor finance could be a lifesaver between payments.

Here's What Working Capital Can Do For Your Business

With so many business finance options to choose from, how do you know whether working capital is right for your business? Start by reading this.

7 Tips For Managing Business Debt

2018 is your year. Here are 7 quick tips and tricks to get back in the driver's seat when it comes to battling business debt.

Time To Refinance? Here's What You Need To Know

Are you ready to refinance? Reviewing your business loan every 2 - 3 years can save your SME a lot of money. Here's what you need to know.

19 Business Funding Mistakes To Avoid

Improve your chances of locking down the perfect business loan. Here are 19 business funding mistakes to avoid when you're applying for commercial finance.

5 Must-Ask Questions When Applying For A Small Business Loan

Getting the best rate is all about asking the right questions. Have you done your research? Here's where to start and why.

Debt Or Equity: What's Best For Your Business?

Need to raise cash for your business? We explore the use of debt versus equity, and how to decide which one is best for your business.