No matter how well a small business is ticking over, it's not unusual for operators to sometimes find themselves in need of an injection of finance.
It could be to cover a cash flow hurdle, to replace or invest in some vital equipment, hire more staff, or access more inventory to meet customer demand. The business may be performing strongly but you just need extra cash to take it to the next level.
Lack of cash for immediate needs is a common challenge for businesses, particularly small and medium enterprises just starting out and getting established.
Not having access to enough funds can for some businesses mean their demise. According to ASIC, cash flow difficulties are one of the top reasons for business failure.
Research from the finance industry shows many small businesses are reluctant to seek finance from lenders, and only turn to it as a last resort.
But there are a number of avenues available to small businesses to readily access much needed funding - to provide the vital stop gap measure or stepping stone to future growth - without having to lay down assets or property as security. The easiest and quickest way is through an unsecured business loan.
Advantages of unsecured loans
Unlike other kinds of business loans, an unsecured business loan requires no collateral and can be approved relatively quickly, sometimes within 48 hours, and all online.
And while the uncertainty created by the coronavirus pandemic has prompted many lenders to tighten up their approval processes, the business loans market has remained busy with funds flowing to businesses for lots of different purposes.
Savvy CEO and business finance expert Bill Tsouvalas said as long as businesses could demonstrate a sound business structure and had a good credit rating they were likely to gain approval for an unsecured business loan.
"While lenders in this space are being very picky there are many types of businesses they're very happy to fund," he said.
"And in some ways there has never been a better time for businesses to apply for the finance they need, with interest rates at historical lows. Businesses can take advantage of that."
Unsecured business loans are most commonly offered by the range of alternative lenders that have proliferated in the Australian market over the past five to seven years.
And while approval processes may have tightened as a result of the COVID crisis, these type of lenders are more flexible than the major banks when it comes to the documentation required.
"For an unsecured loan these financiers would generally request three to six months worth of trading history - business bank statements - to determine whether or not an applicant qualifies - the traditional banks will generally require two years worth of audited tax returns," Mr Tsouvalas said.
"The growth of these sorts of lenders have definitely reduced the barriers to entry and allowed small businesses to thrive because they have access to credit which is important for a business to allow it to grow.'
As well as providing the financial documentation, applicants should be able to provide a clear explanation about the reason for the required cash.
"Whether it's to fund an expansion, to buy an additional piece of equipment that's going to help them generate more revenue or for whatever reason, you need to have a good solid business plan," Mr Tsouvalas said.
Risks to avoid
While an unsecured business loan can offer a legitimate life line for small businesses it's important to take care to avoid the pitfalls.
They are a relatively expensive option - being unsecured you would likely be paying upwards of around 13 to 14 per cent on this kind of loan.
"This needs to be just a short-term solution to resolve some cash flow issue - you do not want to become too dependent on credit just to pay your bills and operate a business," Mr Tsouvalas said.
"Approach this in a very responsible and realistic way. Have a plan in place and pay it off."
A challenge too is sorting through the plethora of lenders and loan products now in the market, and then being confident about selecting the right one.
Seeking out an experienced finance broker is an ideal way to help you navigate your way, determine the kind of loan most suited to your situation and then secure the best deal for your business's future.
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