Unsecured loan

Here are three scenarios where you might consider taking out an unsecured business loan:

• You want to borrow but don’t have many tangible assets (e.g., you rent an office rather than own commercial property).
• You do have some valuable assets but prefer not to borrow more than their worth.
• You’d rather not offer specific assets as security.

An unsecured loan might be a good option if you need to borrow more than the value of your assets, if you would prefer not to provide security, or if you’re a rapidly growing business that requires quick financing.

On the plus side, unsecured business loans are usually simpler and quicker to arrange than secured loans because there is no need for the lender to inspect or value any assets.

However, in the absence of security, the lender focuses more on your business’s profile and may also review your personal credit history and assets. They need assurance that you can repay the loan if things don’t go as planned. Unsecured lending is generally more expensive than secured lending due to the higher risk for the lender.

For an unsecured loan, the lender may consider:

• Revenue and profit (in relation to the loan amount)
• Bank statements
• Filed accounts
• Trading history
• Payment history (e.g., late payments, court judgments)
• Directors’ histories (lenders may ask for a personal guarantee)
• Forecasts and business plans
• Your clients/customers

Unsecured lending can be an appealing option for SMEs, particularly for smaller amounts, due to its straightforward nature and quick access to funding.

The flexibility of repayment periods, which can extend up to five years, allows smaller businesses to address cash flow or liquidity issues promptly. Since your business is already operational, the lender will evaluate it based on your business prospects.

However, for larger amounts (over R500,000), the rates for unsecured loans may be less competitive due to the higher risk assumed by the lender. In such cases, you might find short- to medium-term loans at lower rates.

An unsecured loan is ideal for SMEs that need to borrow without providing security. If you are just starting up or lack assets to use as collateral, an unsecured business loan might be the best option for your needs.

Unsecured lending encompasses a variety of financial products. Beyond short-term loans and ‘term’ loans (which include medium-term and long-term options), it also covers:

• Merchant cash advances
• Revolving credit lines
• Overdrafts
• Credit cards

Additionally, you might want to explore the various types of working capital finance available.