When should I use an unsecured commercial loan?

When should I use an unsecured commercial loan?
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    Having a loan is a huge financial responsibility, so whatever your reason for needing the additional finance, it is always best to approach it with caution. If you are wondering whether an unsecured commercial loan is the right option for you, then keep reading as our bridging loan experts explore what an unsecured loan is and how it can be used by commercial enterprises.

    Unsecured commercial loans (or unsecured business loans) are flexible funding options for businesses and property investors. They can assist with cash flow, equipment acquisition, commercial property purchases, commercial development or other short-term capital needs without requiring security.

    At One, we have a wealth of experience in bridging and property finance for both the commercial and residential sectors. We’ve helped numerous clients across the country secure short-term funding solutions for a multitude of commercial property investments and developments. In this article, we are helping property investors decide when to use an unsecured commercial loan.

    If you are wondering what type of loan is most suitable for you, contact us today, and we’ll put you in touch with a specialist broker.

    What is the difference between an unsecured and a secured loan?

    The main difference between unsecured and secured loans lies in security.

    Secured commercial loans are backed by collateral, typically an asset like a property or a vehicle. This means that if the borrower defaults on the loan, the lender is still protected as they can repossess the secured assets and sell them to recover losses. The additional security allows lenders to provide larger loan amounts with better interest rates.

    In contrast, unsecured commercial loans do not require any assets for security. Instead, they rely solely on the borrower’s creditworthiness and ability to repay. UK lenders will typically assess the borrower’s credit profile, income and financial stability to determine the eligibility loan terms.

    Unsecured loans pose a higher risk for lenders as they cannot easily recoup the money when a borrower defaults. Since there’s no collateral to offset potential losses, lenders offset risk by charging more for an unsecured loan, and they can potentially come with higher interest rates.

    When thinking about business finance, the distinction remains. Secured business loans demand collateral, often company assets like equipment or commercial property. Interest rates are typically lower, making them an attractive option for a larger business with substantial assets that can be used.

    An unsecured business loan, on the other hand, relies on the business’s and business owners’ creditworthiness and, sometimes, a personal guarantee. Interest rates are higher to compensate for the increased risk for a lender, but they provide a viable option for a business that lacks substantial assets.

    Who are unsecured loans best suited to?

    Unsecured loans are suitable for many individuals and companies who require speedy and substantial funding for commercial projects or business needs.

    Whether you need additional funding to get your commercial development project off the ground, boost cash flow or facilitate expansion, unsecured loans offer easier and faster access to much-needed finance.

    Here are some scenarios where unsecured commercial loans may be a good fit for you:

    1. Commercial property investors: As a commercial property investor, purchasing the right property at the right time is essential. This requires you to act fast and have substantial funding available ready to make a sale. Unsecured commercial loans are valuable when you want to grow your property investment business and acquire new properties.
    2. Small businesses and startups: If you run a small commercial business and are still in the early stages of development, then you may not have significant business assets to secure a loan. This is where an unsecured loan can help you access finance for various purposes, such as operational running costs, marketing or expansion.
    3. Quick funding needs: Running a commercial property business can come with unexpected costs, like maintenance and repair costs, utilities or safety upgrades. Unsecured loans often have a faster application and approval process than secured loans, making them a great option when you require immediate access to finance. They help keep the cash flow steady so you can continue running your commercial enterprise without any hiccups.

    What are the benefits of an unsecured commercial loan?

    Unsecured commercial loans can provide many benefits for property investors and businesses needing quick funding. It is important to choose an unsecured loan carefully, however, as they can come with higher interest rates and stricter eligibility criteria and loan terms.

    Take a look at some of the benefits of unsecured loans to determine if it is the right option for you:

    No collateral needed

    The primary advantage of an unsecured loan is that it doesn’t require you to offer assets as collateral. This reduces the risk of losing valuable assets if you are unable to make payments. This feature mainly benefits individuals and businesses that may not have substantial assets to offer or would prefer not to risk having their property repossessed.

    Quick approval process

    Unsecured lending typically has a faster application and approval process, ensuring quick access to funds. Without the need to provide assets as security, you may benefit from a speedier application process, as lenders will have one less aspect to consider when offering a loan.

    Added flexibility

    Unsecured business finance provides peace of mind to commercial business owners and investors, knowing that unexpected expenses will be covered. The additional funding offers you more flexibility in how it is used, whether that’s for working capital, commercial investments, equipment purchases, marketing, or any business-related need.

    Building credit score

    While it shouldn’t be used as a way to build your credit rating (there are other, less risky methods for that), successfully repaying an unsecured loan can positively impact your commercial business’s credit score. This can enhance your creditworthiness and potentially lead to better loan terms in the future.

    Fixed repayment plan

    Unsecured loans often come with a fixed repayment plan, meaning you can work out a suitable repayment schedule with your lender. Monthly instalments typically cover both principal and interest, ensuring a clear timeline for repaying the loan. This fixed structure simplifies budgeting for a business owner, offering predictability and stability.

    How to use an unsecured commercial loan

    Unsecured loans can be used to strengthen various aspects of your commercial business, such as facilitating new commercial property purchases, maintenance and repairs, business expansion or working capital.

    It is a good idea to work out exactly why you need the loan before jumping in and applying. Consider the points made earlier in this article to help understand whether an unsecured loan is the best option or if a different type of commercial loan would be more suitable.

    Once you have determined how much funding you need and what you’ll use it for, you can begin searching for a suitable lender. You’ll need to consider various factors that may impact the type of loan you go for, such as interest rates, loan terms, exit strategies and any additional fees. This is where working with a bridging loan broker can save you time and money.

    A broker can also assist you in submitting an application to the lender, ensuring you have all the information needed to get the best deal.

    The turnaround time of receiving an unsecured loan is fairly quick, and you can begin using the funds as necessary when you receive them. At this point, you will need to manage your repayments and continue to monitor your finances to ensure you successfully repay the loan.

    How much can I borrow unsecured?

    Loan amounts for unsecured commercial loans can range from a few thousand to several hundred thousand pounds. Smaller commercial businesses or startups might secure smaller loan amounts, while more established businesses with a solid credit history and financial stability may qualify for a larger loan application.

    Get an unsecured loan with One today!

    If you are looking to access unsecured finance quickly for your commercial project, then an unsecured commercial loan can provide the financial boost you need. At One, we will guide you to the best people in the field of commercial finance, ensuring you get fast access to some of the most competitive loan deals on the market.

    Contact us today for expert advice from a trusted team of commercial brokers.

    Mark Piper
    Mark Piper

    Mark is the senior advisor at One Commercial Loans and has a wealth of experience in bridging and property finance.

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