Unsecured loans are different to secured loans, in that the borrower does not need to provide charges or debentures over their assets as security or collateral to the lender. Though this option is great because it gives the borrower peace of mind regarding their assets, it is riskier for the lender, so interest rates can be higher. The maximum amount of funding available is also often lower than that of secured loans.
An unsecured loan is often the more viable option for SME’s, as often, they do not yet have the assets required to borrow against. Instead, your credit score will be taken into account for an unsecured loan, as any lender will want to ensure that you are capable of paying back what is loaned to you.
The process is fairly straightforward – as the borrower, you agree to make regular payments until the loan is paid in full. If you do not make the payments, you may end up incurring additional charges, which is why any responsible lender will carry out the appropriate due diligence checks to ascertain whether a borrower can realistically afford the payments.
Alternative finance providers like Nucleus Commercial Finance are paving the way for SME’s, as they are attuned to the challenges faced by small businesses and have therefore come up with financial solutions to overcome them.