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A UK Business Guide to Unsecured Loans

Whether you are planning to launch your own company or are already a successful entrepreneur, being part of the business world requires regularly raising money to sustain and grow your enterprise.

Unless you have significant savings, a loan is often the best funding option for those who need to borrow, with many opting for an unsecured loan to source the necessary capital.

Unlike a secured loan, where the borrower pledges property as collateral for the debt, applicants don't need to put up any assets to receive an unsecured loan. As the lenders will have no assets to take possession of in the event of a default, unsecured loan providers simply rely on borrowers to keep up regular repayments. This makes the product most suitable for those with a good borrowing history and if you have an impressive credit score, obtaining an unsecured loan can be a relatively straightforward process.

Is an unsecured loan right for you?

Advantages of an unsecured loan

  • There's no risk to your home, as you're not required to supply property as collateral.
  • This lack of collateral means there is no need for any property to be evaluated as part of the application. This speeds up the process, meaning successful applicants receive their funds sooner
  • With no need to involve property, you are free to apply for an unsecured loan as either a tenant or a homeowner.

Disadvantages of an unsecured loan

  • The absence of collateral means that unsecured loans are deemed riskier, which will result in higher interest rates being applied.
  • Lenders are relying solely on your ability to repay the loan, making it much harder for you to qualify with a poor or non-existent credit score.
  • Unsecured loans generally offer borrowers less money in comparison with secured ones. More substantial amounts will also only be available to those with exceptionally high credit scores.

If you believe an unsecured loan is the best option for your business, there are things you can do for the best experience.

Review and compare providers

Each lender will have their own unique criteria, so reviewing every one of your options will allow you to identify the best deal for your particular situation. For instance, while a bank may seem like the most obvious place to source an unsecured loan, a guarantor loan provider may be more appropriate if you have a low credit score and are, therefore, more likely to be rejected for a traditional loan.

You can use online tools to examine the details of a particular loan and then cross-reference this data with other providers. For instance, on Finder.com, you can compare the UK's largest provider of guarantor loans, Amigo Loans, to all the other companies in the wider market. By selecting how much money you need to borrow, and for how long you plan to pay it back, you can examine the representative APR, monthly repayments, and the total repayment. All this information displayed side by side will make it easier to identify the most suitable lender for your business' needs.

However, it's also important to remember that impeccable customer service is just as important as the deal itself. When taking out an unsecured loan, you want reassurance that your provider will be receptive and easy to communicate with throughout your relationship. To get a better sense of what a company will be like to work with, it is sensible to consult a reliable reviews website. For example, if Amigo Loans appeared to be your best option based on the Finder.com comparison, you could visit their Trustpilot page to get a sense of how other customers found their experience.

Understand your financial requirements

Before taking out an unsecured loan, you must ensure that you thoroughly understand your business's financial requirements. This will help you figure out why exactly you're borrowing money in the first place. It could be for additional marketing materials, to offset inventory costs, or to kickstart a brand new project. With this purpose in mind, you will have to document exactly what you plan to do with the money so you can calculate exactly how much you need to borrow. As interest rates are higher on unsecured loans, it is best to avoid taking out a larger loan than your business requires, as it will cost more to repay it.

It is also integral that you only spend your loan on the purpose it was intended for. Dividing your resources might mean there will no longer be sufficient funds available to achieve your goal and could result in both wasted money and effort, or even put you in a position where you may need to take out another loan to repay your initial loan, increasing your company's debt.

If you successfully acquire an unsecured loan, it's crucial that you keep on top of repayments. Failing to do so means you'll eventually default, making you liable to pay even more money as a result of huge penalties and interest charges. This damages your credit score and makes it far more difficult for your business to borrow money in the future. For this reason, you must manage your cash flow by keeping on top of invoicing, accounting, and reports. It may also help to build a cash reserve to cushion you if there are any unexpected slumps, and forecast your cash flow using a dedicated calculator. These practices will be valuable in helping you make your unsecured loan repayments.

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