Unsecured loan

Quick facts

An u003ca href=u0022https://swoopfunding.com/za/loans/unsecured-business-loans/u0022u003eunsecured business loanu003c/au003e is a loan that doesn’t require you to offer security (in contrast to a u003ca href=u0022https://swoopfunding.com/za/loans/secured-business-loans/u0022u003esecured business loanu003c/au003e). As loans these are not secured by collateral (assets to be sold in forfeiture of debt), these are likely to charge interest rates as the lender assumes a higher degree of risk. Also, the borrower is required to show an excellent credit history and cash flow projection.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eThe loan amount could be from as little as R10,000 to R500,000 and the term rates up to 5 years.

Here are three scenarios where you might look at taking out an unsecured business loan:rnu003culu003ern tu003cliu003eyou’re looking to borrow, but you don’t have much in terms of tangible assets (e.g. you rent an office rather than owning commercial property)u003c/liu003ern tu003cliu003eyou do have some valuable assets but you don’t want to borrow more than your assets are worthu003c/liu003ern tu003cliu003eyou’d prefer not to offer specific assets as securityu003c/liu003ernu003c/ulu003ernYou might want to consider an unsecured loan if you want to borrow more than the value of your assets, if you would prefer not to offer security, or if you’re a fast-growing business that needs finance quickly.

On the plus side, u003ca href=u0022https://swoopfunding.com/za/loans/unsecured-business-loans/u0022u003eunsecured business loansu003c/au003e are usually simpler and quicker to arrange than u003ca href=u0022https://swoopfunding.com/za/loans/secured-business-loans/u0022u003esecured loansu003c/au003e because there is no need for the lender to inspect or value any assets.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eHowever, in the absence of any security, the lender cares much more about your business’s profile – and may also look at your personal credit history and personal assets. After all, they will need assurance that you can repay the loan if things don’t go to plan. Unsecured lending is usually more expensive than secured lending because there’s more risk for the lender.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eFor an unsecured loan the lender may look at:rnu003culu003ern tu003cliu003erevenue and profit (vs. loan amount)u003c/liu003ern tu003cliu003ebank statementsu003c/liu003ern tu003cliu003efiled accountsu003c/liu003ern tu003cliu003etrading historyu003c/liu003ern tu003cliu003epayment history (e.g. late payments, court judgments)u003c/liu003ern tu003cliu003edirectors’ histories (lenders may ask for a personal guarantee)u003c/liu003ern tu003cliu003eforecasts and business plansu003c/liu003ern tu003cliu003eyour clients/customersu003c/liu003ernu003c/ulu003e

Unsecured lending for SME’s may be an attractive option especially for smaller amounts as it is straight forward and quick access to funding.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eThe flexibility of repayment periods which can be up to five years allows smaller businesses to respond quickly to cash-flow or liquidity problems. As you are already trading, the lender will assess against your business prospects.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eHowever, for larger amounts (over R500,000) the rates offered on an un-secured loan may be un-competitive as it reflects the higher risk taken by the lender. You may find short to medium term loans at lower rates.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eAn unsecured loan is ideal for the SME that needs to borrow money without providing security. If you are just starting up or you don’t have any assets to use as collateral, raising capital can be tricky. A business loan which is not secured may be the optimal option for your business.

Unsecured lending is a broad term. As well as short-term u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/business-loans/u0022u003eloansu003c/au003e and ‘term’ loans (i.e. medium-term and long-term loans), it includes, for example, u003ca href=u0022https://swoopfunding.com/za/merchant-cash-advance/u0022u003emerchant cash advancesu003c/au003e, u003ca href=u0022https://swoopfunding.com/za/loans/revolving-credit-facility/u0022u003erevolving credit linesu003c/au003e, u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/business-overdraft/u0022u003eoverdraftsu003c/au003e and u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/business-credit-card/u0022u003ecredit cardsu003c/au003e.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eYou might also want to consider the different types of u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/working-capital-finance/u0022u003eworking capital financeu003c/au003e.

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