As a business owner, there’s no doubt that a lack of cash flow and working capital can not only cause you a lot of stress, but also potentially sink your business altogether. No one wants their business to fail, so it’s important to know what options are available to you if things turn sour.
Business loans, for example, are a great safety net for those who need a quick injection of cash to boost their business. But with a wide selection of business loans available, it can be difficult to know where to start. Today, we’re going to look at unsecured loans, as they provide a popular, flexible and less-risky funding option for businesses.
What is an Unsecured Business Loan?
An unsecured business loan is a type of loan that is obtained without providing collateral (i.e. a valuable asset such as property you own, that is pledged as security for repayment). With unsecured business loans, the lender cannot seek repayment by going after your assets; however, your lender may ask for a personal guarantee from the directors of the business instead.
Unsecured business loans are usually obtained through an alternative lender, as opposed to a traditional lender such as a bank. This not only means that the application and approval process is much quicker, but they’re also designed to be obtained more easily than secured loans.
5 Ways an Unsecured Loan Can Help Your Business
Unsecured business loans can be used to assist businesses of all shapes and sizes. Just some of the most common ways a business owner will use their acquired funds include the following:
1 - Buy new equipment or machinery
Your business might need new equipment or machinery to help make certain processes easier (i.e. through automation). They can also be necessary to streamline your workflow and produce a much better experience for your customers. Many businesses, however, will not have the available funds to make such an expensive purchase, which is where an unsecured loan comes in handy.
2 - Buy or rent a larger workspace
As your business grows, there’s no doubt you’ll need to upgrade your current workspace to a larger one to house more customers, staff, machinery, or stock. A larger workspace can be a stepping stone to a more successful business, but it comes at a cost. Thankfully, the funds from an unsecured loan can help you get there without dipping into your working capital.
3 - Purchase inventory or stock
If your business doesn’t have enough stock, how can you expect to keep up with customer demand? Businesses looking to grow and prosper will want to ensure their stock levels are always at an optimal level. After all, no one wants to turn away good business, only to permanently lose those customers to one of your competitors.
4 - Hire additional staff
If there seems to be enough demand for your products or services, then hiring additional staff is a great way to help your business grow further. They say many hands make light work, and this couldn’t be truer when it comes to business. Being able to hire additional staff with the funds acquired from an unsecured business loan means that you have more employees dedicating their time to the growth and success of your business.
5 - Cover advertising or marketing costs
If you’re ignoring the importance of advertising or marketing due to a lack of funds, then you’re not alone. Many small business owners find such costs to bear too much of a burden on their cash flow; however, it doesn’t have to be that way. If you qualify for an unsecured business loan, then the funds can also be used to hire help in these areas, or even to pay for advertising, sponsorships, and other small business expenses. No one can deny how advertising and marketing can positively impact their business by spreading awareness and acquiring new customers.
Now that you know what an unsecured business loan is, as well as the most common ways it can help your business to grow, we hope you can make a more informed decision regarding business finance when the opportunity arises. Unsecured business loans aren’t just flexible and low-risk; they also provide your business with a cash flow safety net in times of need.
Our guest author Melanie Doncas is a content writer for Lumi, an Australian fintech specialising in small business loans. She is passionate about helping SMEs, entrepreneurs, and startups to grow their businesses.