Secured or unsecured
Business loans can be an important first step when it comes to starting or expanding your business, but you should first ask yourself whether you need a loan, or if you can acquire the funds in an alternative way. For example, if you are a small-to-medium sized company with a consistent revenue stream, you could consider funding options such as angel investors or venture capital to grow your business.
If you decide to go down the path of a small business loan, your first consideration should be whether you want a secured or unsecured loan, depending on your financial situation.
A secured loan is a good choice if you have assets such as property, cash, or equipment to use as collateral against your loan. The big four banks – NAB, ANZ, CommBank, Westpac – offer an array of secured business loans, as do established financial institutions such as Sydney Credit Union and ING Direct.
However, if you’re a relatively new business or are just entering a growth phase, chances are you don’t have much in the way of these assets. This could make it difficult to meet a bank’s stringent lending criteria, forcing you to go down the unsecured loan route.
An unsecured loan is not secured against assets and generally requires less paperwork, as the application and approval process takes less time than a secured loan. Additionally, you don’t need to offer any security and the lender can’t force you to sell assets if you miss loan repayments.
There are dozens of institutions vying for your unsecured loan business, many of which – such as Prospa, Capify, and Spotcap – are recent online-only additions to the Australian market.