If your business needs quick access to capital without risking collateral, an unsecured business loan can be a suitable solution. Additionally, startups and small businesses don't always have substantial assets to pledge, making unsecured loans necessary for growth.
Key points about unsecured business loans
- Unsecured business finance doesn’t require the borrower to put up collateral (security in the form of assets)
- Interest rates on unsecured business loans range from 15-20% p.a.
- About 65% of small businesses that apply for funding opt for an unsecured loan, according to Lend proprietary data
- The median amount requested for an unsecured business loan is $30,000
What is an unsecured business loan?
An unsecured business loan is a type of business finance that doesn’t require collateral. This means your loan isn’t secured against your personal assets or other business assets, as is often the case with other business loans.
Instead, unsecured finance is assessed against your business creditworthiness — revenue and credit profile. This presents a higher risk to the lender, so expect to pay a higher interest rate. Unsecured finance can include loans, credit cards and lines of credit.
You can use an unsecured business loan for any purpose, including for capital expenditure, to consolidate debt or to cover multiple costs. Unsecured finance is offered by banks, credit unions and non-bank (online) lenders.
How an unsecured business loan works
An unsecured business loan works like a personal loan. You borrow a lump sum that you repay with interest over a fixed period. You can set your repayment frequency weekly or monthly to match your income patterns. Unsecured loan terms are usually shorter, from three months to five years.
The main advantage of an unsecured business loan is that you don’t have to tie up any of your assets to secure the funds. In some cases, you may be required to provide a personal guarantee (which makes you or any directors personally liable for the debt).
On the other hand, a secured business loan is usually secured against residential property or business assets like equipment or inventory.
Unsecured business loan rates & fees
|Interest rate ||Loan Terms||Upfront fee||Monthly fees|
|15-20% p.a.||3 months - 5 years||$0-500||$0-$10|
Pro tip: With some unsecured business loans, the interest calculation may be based on a factor rate instead of a traditional annual percentage rate (APR). A factor rate is expressed as a multiple of the loan, for example, 1.15 times the loan balance. Use our calculator to convert your factor rate into an APR. The APR measures a loan’s true cost, including the interest rate, fees and loan term.
Who’s eligible for an unsecured business loan?
The minimum eligibility criteria for an unsecured business loan include:
- Australian citizenship or permanent residency
- An active ABN or ACN
- Minimum trading history of six to 12 months
- Minimum $10,000 monthly revenue
- The ability to provide financials or bank statements
- A good credit score — the minimum credit score for business lending is around 400.
Let's get started! Get an unsecured business loan quoteSee if you qualify
How much can you borrow for an unsecured business loan?
You can borrow between $5,000 and $500,000 with an unsecured business loan. Your borrowing limit will depend on your business creditworthiness, including your net revenue and credit rating, and your lender. According to Lend proprietary data, the median amount requested for an unsecured business loan is $30,000.
Pro tip: Because an unsecured loan is considered riskier, your borrowing capacity will be limited. Some lenders may allow you to borrow up to 80% of your business's free cashflow (the amount left over after operating expenses), while some may consider a 12-month unsecured business loan equal to your monthly earnings.
Types of unsecured business loans
Unsecured term loan: A term loan repaid in regular payments over an agreed period of time. It’s usually for a specific purpose.
Unsecured line of credit: A line of credit gives you access to a specific amount of funds. You can use part or all of the funds and pay it back and use it again and again. You only pay interest on the amount drawn.
Unsecured merchant cash advance: A merchant cash advance allows you to borrow a lump sum which you repay as a percentage of future credit card and EFTPOS sales. It's only available to businesses with regular merchant payments.
Credit card: A credit card provides access to funds up to an agreed limit. You must repay the minimum balance each month to continue accessing that limit.
Common uses of unsecured business loans in 2023
The most common reasons businesses take out an unsecured loan in 2023 include:
- Day-to-day capital: 38%
- Other (e.g. inventory, payroll, marketing): 27%
- Vehicles/transport: 21%
- Expansion: 9%
- Renovations: 2%
Unsecured business loans for SMEs
An unsecured loan is often the only option for small businesses and startups that don't have valuable assets to leverage or who want to avoid risking personal or business assets. Unsecured loans account for 65% of small business loan applications on Lend, followed by asset finance (22%) and lines of credit (2.5%).
Unsecured business loan pros & cons
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How to apply for an unsecured business loan
To apply for unsecured finance, you’ll need to submit some financial documentation and information about your business.
1. Financial documents
Lenders will request financial paperwork to verify your revenue stability and ability to make repayments, including:
- Bank statements for the business from the last six to 12 months
- Business registration and tax information (e.g. BAS statements, tax returns)
- Your business and personal credit rating
If you want to borrow more than $150,000, you’ll also need to provide:
- Profit and loss (P&L) statements (prepared by an accountant)
- Business balance sheets
- A business plan outlining how the funds will be spent
2. Business information
Lenders will also assess your business trading history and reputation. They’ll want to see:
- Proof you’ve been operating for the lender’s minimum required period
- How your business is structured (e.g. company, partnership, joint venture, sole trader)
- The location of your business
- The industry your business operates in
Case studies for unsecured business loans
Alexander is a mechanic who recently started his own business. He's been trading for four months and rents an industrial unit. The business needs a car hoist that's going to cost $14,000. His average monthly revenue is $7,000. He approached his bank for a loan but was declined because he didn't meet the minimum trading time requirement. Alexander looked for business loans online, completed an online loan application and was offered an unsecured loan on a nine-month term.
Jason started his printing business two years ago and needs to rent a larger space with additional equipment, which will help increase output and secure more customers. He doesn't own property or assets due to investing most of his money into growing his business. He needs $75,000 to help cover the cost of relocating, renting larger premises and hiring more printers. His average monthly turnover is $19,000, and 75% of his customers pay by POS credit card; the remaining 25% are invoiced on 30-day terms paid by bank deposit. An unsecured loan is a good option for Jason because he has no assets or collateral to secure a loan.
Emma has a retail business in a high street selling homeware items. An opportunity has come up to purchase stock at a discounted price, but she needs to buy it immediately. An unsecured loan is ideal for Emma as she needs access to funds quickly to avoid missing out on the stock. Most of Emma's revenue comes from card payments, so she's offered an unsecured loan via merchant cash advance.
Bec and Susan
Bec and Susan own a cafe in a popular seaside tourist destination. They're busy in spring and summer, but business slows down during autumn and winter. They want to renovate the cafe during winter in preparation for the next busy period. The renovation includes expanding the seating area, which will help serve more customers. They need $65,000 for the renovation. Although their monthly revenue drops during autumn and winter, and they must close the cafe for three weeks, their annual revenue shows they can afford the loan. They take out an unsecured business loan on a six-month term to pay for the renovation.
Unsecured business loan vs other business finance comparison
|Unsecured business loan ||secured business loan||Credit card||Line of credit/overdraft|
|Loan amount||$5K - $500K||Any amount||$10K - $500K||$5K - $1M|
|Loan term||1 - 3 years||1 - 10 years||Ongoing ||3 - 12 months|
|Security||Not required||Required||Not required||Can be both|
|Repayments||Weekly or monthly ||Weekly or monthly ||Minimum monthly repayment||Percentage of overdrawn amount (monthly)|
|Approval time||Same-day approval ||Slow||1 - 7 days||1 - 2 days|
Best lenders in Australia for unsecured business loans
- ABR Finance
- Business Fuel
- Finance One
- Grow Finance
FAQs about unsecured business loans
Is interest on an unsecured business loan fixed or variable?
Interest rates on unsecured business loans can be fixed or variable, or a combination of both. For example, you may be on a fixed rate for up to a year and revert to a variable rate for the remainder of the loan term.
Do I need to provide a deposit for an unsecured business loan?
You don’t typically need a deposit to obtain an unsecured business loan if you meet all the eligibility requirements, although this can vary between lenders. However, some businesses may choose to contribute a small deposit to reduce their loan amount or get a better interest rate.
Do I need to provide a personal guarantee for an unsecured business loan?
Some lenders may require you or other business directors to provide a personal guarantee, essentially making you (or other directors) personally liable for a portion of the loan or the full amount. There are several types of personal guarantee agreements depending on your business structure. Generally, business directors can each guarantee a fixed percentage of the loan amount.
Can I get an unsecured business loan if I have bad credit?
Yes, you can still get an unsecured business loan if you have impaired credit, but keep in mind you’ll pay a higher interest rate to reflect the added risk to the lender. Some lenders also offer bad credit business loans similar to standard unsecured loans but with some restrictions.
Can I repay my loan early?
Yes, you can typically repay an unsecured business loan early or make extra repayments to reduce your interest on the balance. However, some lenders may charge break costs and early repayment fees, so check this in the fine print of your paperwork.
1. Proprietary data of small businesses who applied for finance through Lend.com.au and have been operating for at least five years (2023).