Unsecured Business Loans Explained

A secured business loan requires collateral, such as property or equipment, to secure the loan amount.

This collateral serves as a guarantee for the lender, reducing their risk and typically resulting in lower interest rates and larger loan amounts.

In contrast, an unsecured business loan doesn’t require collateral, making it accessible to businesses without valuable assets to pledge.

While unsecured loans often have higher interest rates and smaller loan amounts, they offer faster approval times and greater flexibility, as they don’t involve the lengthy process of assessing collateral value.

Ultimately, the key difference lies in the presence or absence of collateral securing the loan.

At Prospa, business loan interest rates can vary depending on a range of factors, the industry you operate in, the length of time your business has been established, the financial health of your business, and your cashflow.

To get an indication of how much a loan might cost at Prospa, talk to our friendly customer service team to see how they can help you get a suitable product for your small business needs.

The phrase ‘no asset security’ refers to the absence of collateral or tangible assets required to secure a business loan. When Prospa provides a small business with funding we take a personal guarantee from directors, shareholders or persons actively engaged in the management of the business, such as the business owner.  

There are two circumstances under which we may also take security in the form of a charge over assets. That is, if the client’s total combined exposure to Prospa funding is (or becomes) greater than $150,000, and/or if a client defaults on their contractual obligations. 

The charge over assets allows us to register the security interest on the Personal Property Securities Register (PPSR), or we may register a caveat. If the customer’s combined exposure to our products is over $150,000 we will usually only register on the PPSR (unless the customer later goes into default). If a customer defaults under their loan, we may register on the PPSR and/or register a caveat. 

Interest rates on unsecured business loans can vary based on several factors, including your creditworthiness, the lender’s assessment, the loan amount, and the repayment term. As there is no collateral to mitigate the lender’s risk, interest rates on unsecured loans are typically higher than those on secured loans. 

It’s important to research and compare interest rates from different lenders to secure the most favourable terms for your business. Some lenders may offer fixed interest rates, ensuring consistent monthly payments, while others may offer variable rates that fluctuate with market conditions. Consider your business’s financial situation, risk tolerance, and repayment preferences when selecting the loan option with the most suitable interest rate structure. 

When applying for a traditional secured business loan, lenders typically require collateral to secure the loan amount.

Acceptable forms of collateral can include: 

• Real Estate: Property such as land, buildings, or commercial spaces can be used as collateral. 
• Vehicles and Equipment: Lenders may accept valuable machinery, vehicles, or equipment as collateral. 
• Inventory: Certain lenders may consider inventory as collateral, especially in industries where inventory value is high. 
• Accounts Receivable: Unpaid customer invoices or accounts receivable can be used as collateral in some cases. 
• Cash and Savings: In certain instances, lenders may allow cash deposits or savings accounts to secure the loan. 

At Prospa, if a customer borrows more than $150K, we require upfront asset security in the form of a charge over the applying business entity (or entities) which will be registered on the Personal Property Securities Registry (PPSR).  

It’s important to note that the specific collateral requirements can vary between lenders. Always consult with your chosen lender to determine their acceptable forms of collateral. 

While various assets can be used as collateral, certain types of collateral are generally not accepted by lenders:

• Personal Assets: Typically, lenders require business-related collateral rather than personal assets, such as a personal residence or personal savings. 
• Intangible Assets: Assets such as intellectual property, trademarks, patents, or copyrights are generally not accepted as collateral. 
• Future Revenue: Lenders usually do not consider projected future revenue as collateral since it is uncertain and not immediately accessible. 
• Uninsurable Assets: Assets that cannot be insured or have uncertain value are less likely to be accepted as collateral. 

It’s crucial to review the specific collateral requirements of lenders before applying for a business loan to ensure your assets align with their criteria.