What is unsecured business lending?

Unsecured business lending is a type of business loan wherein borrowers are not expected to put forth any specific kind of collateral, to obtain the finance they require to grow their business.

The term collateral refers to a type of security that borrowers would usually put forth as an assurance that the loan will be repaid. It usually comes in two forms: personal liability and asset liability.

If the borrower is unable to repay the loan amount, ownership of the collateral transfers to the lender. The lender then sells the collateral to compensate for the loss. It’s an approach that many finance lenders rely on and often, the best repayment terms and rates can be negotiated when a loan is secured.

Since unsecured business lending does not require borrowers to provide any collateral, it is a great option for small businesses that do not possess any valuable assets. This type of commercial loan is also typically a short-term loan option, at Nucleus Commercial Finance we offer such finance for small businesses and always judge each case individually.

Is an unsecured loan really “unsecured”?

Unsecured business loans are a quick way of securing finance. They are rightly known as a fast financing option since there is no processing time related to valuing assets put forth as collateral. This certainly does not mean that the collateral element is completely eliminated in the loan agreement however.

Financial lenders do have the right to collect the equivalent value of the outstanding loan amount with an unsecured loan, but it can only be done with a court order.

Whilst financial lenders do have the right to seize assets, it should not be necessary, as sensible finance providers evaluate the ability of a business to pay back a loan before going ahead with providing indicative offers for finance.

At Nucleus Commercial Finance we ensure that borrowers are in a position to comfortably repay what they borrow. We offer hassle-free unsecured business loans to help businesses achieve their growth plans at a responsible and affordable rate.

The benefits and key considerations of unsecured business loans

Benefits:

• This type of loan is considered low risk and is therefore a lot more attractive to business owners who are not willing to risk their home and other personal assets.
• Since the borrower is not required to document their assets for an unsecured business loan, aspects of the loan underwriting process become far easier, which means turnaround time is a lot quicker too.
• The funding from an unsecured business loan can be used for various needs, including management of cash flow, expansions, refurbishments and purchasing assets such as machinery and vehicles.

Key things to consider:

• The amount that can be borrowed is often less with an unsecured business loan – so, if your business is looking to borrow a more substantial amount, providing assets as security may well be the better option. We offer products that are ideal for borrowing larger amounts, such as our property finance product.
• An unsecured loan can be harder to obtain if your business does not already have a strong trading position. Our dedicated team always try to help all kinds of businesses however, which is why we encourage all business owners to fill out our quick, hassle-free application form.

Banks vs alternative lenders

Business owners usually first try to secure additional funding by applying for a business loan with their bank. Some entrepreneurs feel that they have a healthier relationship with their bank, and since the bank knows almost everything about their current financial situation, it only makes sense that they would automatically qualify for a bank loan.

Unfortunately, the process of securing a bank loan is not that simple. Just like any big enterprise, financial institutions are not always easy to deal with. They often offer very limited, to no capital flexibility and take longer to provide a decision as they require a lot of information beforehand.

British banks have specific guidelines and rules that they abide to and their approach is very rigid. If your business does not fit in their ‘commercial loan box’, your chances of securing a bank loan are extremely slim.

Regardless of the relationship you share with your bank, you will still be judged by the application you submit to the bank. This application includes resumes, business plans, cash flow projections, your balance sheet and past financial records.

Banks also consider specific ratios, such as:

• Debt Ratio. This ratio calculates a company’s total debts to total assets. Meaning the proportion of a company’s assets that are financed by debt. For example a company with £2 million in total assets and £500,000 in total liabilities would have a debt ratio of 25%.
• Debt Service Coverage Ratio. This ratio, also known as “debt coverage ratio”, is the ratio of cash available for debt servicing to interest, principal and lease payments.

It is a popular benchmark used in the measurement of a company’s ability to produce enough cash to cover its debt payments.

• Loan-to-Value-Ratio (LTV) is a ratio used to express the ratio of a loan to the value of an asset purchased. For example, you may purchase a property for £300,000. You put £60,000 down as a deposit. Meaning you’ll need a loan of £240,000 in order to purchase the property, therefore your LTV will be 80% since 240,000 is 80% of 300,000.

There are some rigorous processes that banks implement which limits their risk exposure to business loans. This requires a very strict underwriting process that might take weeks to complete, so small businesses needing fast access to working capital find themselves in an even bigger financial mess by the time they receive their loan.

In contrast to the way banks function, alternative finance lenders typically fund a business within 2 to 5 business days with limited paperwork. Nucleus Commercial Finance offer unsecured small business loans. In fact, we can provide businesses with a tailored financial solution from £5,000 to £50m.

Our products are flexible, fair and the turnaround time from application to receiving funds is far more accelerated than that of the banks. Our Cash flow finance product is an unsecured, commercial loan that allows businesses to borrow up to £150,000.

The growth of alternative business finance

Since the banks have tightened their lending criteria, confidence in business lending has greatly reduced. This has discouraged many business owners from trying to secure a loan since they are worried it will affect their credit rating or just waste their time altogether.

Fortunately, alternative business finance provides another opportunity to raise the required capital to reach growth goals or bridge gaps between seasonality. It provides businesses with a much more feasible way to borrow money.

In recent years, alternative business finance has become increasingly popular and it has now become a reliable option for securing funds.

Choose finance with Nucleus

Nucleus Commercial Finance has already lent over £2.9bn+ to businesses across the country. We are on a mission to make finance accessible to more companies and are readily offering loans from £3,000 to £2m for growth and development targets.

Our products are specifically designed to fit the needs of each individual business that we work with. Depending on the product, we can even provide same day decisions and funding.

We know how important it is for businesses to get access to funds promptly, so we make the entire process as simple and hassle-free as possible.

Regardless of whether you need an unsecured or secured business loan, we will find the best bespoke solution that will fulfil all your financial needs. Our products and services come with expert guidance, honesty and a dedicated account manager. If you want to explore the finance options readily available to your business, please contact us today.