At Nucleus, we have witnessed firsthand how market conditions across all industries have fluctuated throughout and after the pandemic years of Covid-19. Unexpected losses and expenses will always strain a business’s cash flow, and can unfortunately lead to growth hindering debt accumulation that, left unchecked, can get out of control. Regaining financial stability through planning and management can be a complex task, so below we will look at how unsecured business loans can be utilised as an effective tool for companies grappling with debt.

Scope of Uses for Unsecured Business Loans

Unsecured business loans are versatile tools for financial management, and can be an ideal solution for addressing a range of accumulated debts or impending bills. While many types of debt are predictable and expected, sometimes things can get out of hand, fortunately the scope of debt that can typically be settled with unsecured loans is cast, and for businesses across all industries typically fall under some common categories:

Supplier or Vendor Bills: A crucial part of maintaining positive relationships with established partners, and ensuring a steady supply chain, is ensuring outstanding payments to vendors or suppliers are consistently settled in good time.

Utility Bills: If overdue utility bills have been ran up, be it electricity, gas, or even internet services, an unsecured facility can be utilised to clear the debt to avoid disrupting business operations.

Short-term Loans or Advances: In some scenarios unsecured loans can be ideal for businesses to pay off higher-interest short-term loans or cash advances that are causing financial strain, granting relief and better repayment terms on their new facility.

Tax Liabilities: Missed tax deadlines that will quickly accrue heavy financial penalties through fines and compounding interest can be cleared.

Lease or Rent Payments: In times of economic downturn or over expansion, businesses can find themselves catching up on delayed rent or lease payments, unsecured business loans can offer short-term relief while operations return to capacity.

Credit Card Debts: As with short-term loans and advances, businesses can pay off high-interest credit card debts, effectively consolidating the debt onto new and more desirable terms.

Emergency Expenses: Any intentional short-term debt taken on for immediate capital expenses, emergency repairs, or unexpected costs can be paid off without disruptions to day to day financial obligations.

Benefits of Using Unsecured Loans for Settling Debts

There are many advantages to using an unsecured business loan for businesses aiming to effectively manage their debt. Between immediate short-term financial relief, to longer-term credit health, below is a look at some key benefits.

Immediate Relief

Mounting bills and looming financial deadlines can cause business owners an overwhelming amount of stress. Unsecured business loans offer hastily accessible relief, not just for finances, but for the potential operational problems that are associated with debt. A prompt response to overdue bills will avoid late fees and penalties, as well as the potential of debt escalation, and by taking action, businesses can avoid the negative cycle of increasing financial troubles, returning focus to core operations and growth.

Cash Flow Improvement

Disruptions in cash flow from unsettled debts can have knock-on, far reaching negative consequences across all areas of a business, quickly spiralling from hampered day to day operations, to stagnations in growth. Short-term, unsecured loans allow business owners to clear their debts and free up cash flow, shifting repayments to more manageable terms, effectively providing a financial reset, and allowing time to implement a financial strategy to avoid falling back into mismanaged debts.

Credit Score Preservation

The impact of unsettled debts on a business’s credit score cannot be overstated, and frequent late payments due to mounting debts will inevitably earn the burdensome toll of a low credit rating, making it more difficult and expensive to secure future financing. Accessing an unsecured business loan with more desirable terms and conditions to repay debts can help preserve and even improve an enterprises credit score. Taking control of your debt, and being capable of making timely payments will help rebuild trust in your brand with both vendors and financial institutions.

Strategic Financial Management

If a company has already fallen into unintentional debt, an unsecured business loan can necessitate a strategic plan to guarantee future financial wellbeing. Essential components of financial management typically include determining which debts will be most beneficial to address first (if there are multiple), and then planning how to efficiently budget a facility once it is acquired.

Prioritising Debts

If a business has allowed itself, unintentionally or otherwise, to fall into multiple debts, a well planned financial strategy to fix and avoid future problems should be a top priority. Part of that plan will also involve prioritising which debt to pay off first. Below are some guidelines business owners can consider:

High Interest Rates First: Debts with high interest rates can eat into profits like no other, even if the total sum to pay back may appear relatively low compared to others. Prioritising high interest problem debts will immediately save money in ongoing accrued interest costs.

Due Dates and Late Fees: Bill deadlines and associated fees should be a priority to keep track of and avoid missing, as well as any debts approaching their due date, to help avoid suffering penalties.

Impact on Operations: If some unpaid bills are clearly having a larger negative impact on business operations, be it through finances or a supplier that may halt deliveries, they should be targeted so regular operations are not disturbed.

Smaller Debts for Quick Wins: While debts that cause the largest financial strain should always be prioritised, being able to address smaller debts when possible can create short-term gains, helping to enhance the presentation of a business’s financial statements.

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Budgeting Post-Loan 

Once you have prioritised your repayments, and an unsecured loan has been secured, it should be a critical aim for businesses to manage their finances properly to avoid falling back into debt. Here are some universal budgeting tips to consider: 

  • Seek Professional Advice 
  • Create a Repayment Plan 
  • Monitor Cash Flow Closely 
  • Avoid Unnecessary Expenditures 
  • Build a Reserve Fund 
  • Review and Adjust the Budget Regularly 

Potential Risks and Considerations of Taking on Debt to Settle Debt 

Taking on an unsecured business loan to settle other debt can come with many benefits, though it is also important for business owners to consider the potential risks that further mismanaged debt can incur. These factors, when understood, can help ensure any decisions to take out a loan are sustainable for business, and beneficial in the long run. 

Risk of Accumulating More Debt 

A significant concern to consider for businesses looking to utilise an unsecured business loan to pay off more concerning debts is the risk of entering into an uncontrollable debt cycle. This can happen if a company fails to create a financial strategy, and continues to fail on fulfilling financial obligations, resulting in a continuous rise in overall debt. To help prevent this from occurring, here some key factors to consider: 

  • Responsible Borrowing: Only borrowing what is necessary and having a clear and concise plan of action for how the funds will be used. 
  • Understanding Terms and Conditions: Fully understanding the terms of a loan, including repayment schedules to ensure it aligns with current financial capacities. 
  • Long-term Financial Planning: Integrating the loan into a well strategised financial plan to ensure the business does not then become reliant on external funding and further debt. 
  • Seeking Professional Advice: Before taking any financial decisions, in business or elsewhere, consult with a trusted financial advisor who can provide valuable advice and insights with regards to debt management and loans. 

Apply for a Nucleus Unsecured Business Loan 

At Nucleus Commercial Finance we offer uniquely tailored unsecured business facilities ranging from £10k to £2m, with flexible terms of 3 months to 6 years. As a business we understand that each company faces its own unique challenges, and note that our evaluation encompasses not just a company’s creditworthiness, but its financial status, too. As collateral is not a requirement for this loan option, we instead consider factors such as anticipated cash flow and the performance of the enterprise. The approval of the loan will also depend on satisfactory searches involving both the business and its directors. 

Thanks to our open banking integrations, you can now apply for a loan in mere minutes. This not only allows for a quick determination process, but also helps you assess our range of flexible facility options – starting at 8.5% interest – align with your current business requirements. Don’t let debt hold your business back. Contact us today at 020 7839 1980 for a personalised consultation. 

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