Unsecured business loans

What unsecured means

With a secured loan, the lender holds a specific asset, such as property or a vehicle, and can sell it if you stop paying. An unsecured loan has no asset behind it. That makes it quicker to arrange, since there's nothing to value, and it's the most common kind of loan from online lenders.

For example, if you borrow $150,000 or less in total from Prospa, you won't need to provide security. If you borrow more, Prospa registers a general security interest over your business.

The personal guarantee

Lenders still want to know they'll get their money back. Most ask each director to sign a personal guarantee, which makes you personally responsible if the business can't pay. If the business fails, the lender can come after your own assets, including your home.

Read the guarantee carefully before you sign. Some cover only one loan. Others cover everything the business owes that lender, now and in future.

Security over the business

Even if a loan is called unsecured, it might still be secured against your business. Some lenders take a general security agreement over your business's assets and register it on the Personal Property Securities Register (PPSR). That means they can claim equipment, stock, bank accounts and money owed to your business if you can't repay the loan. Your loan agreement will tell you if this applies.

The PPSR doesn't include land. You can search the register to see what's listed against your business, and once you repay the loan, ask your lender to remove the registration.

What it costs

Unsecured loans usually cost more than secured ones, because the lender takes on more risk. Terms are shorter too, often months where a bank would lend over years. Before you sign, use the true cost calculator to find the true annual rate, and compare it with what your bank would charge for a secured loan.