March 2019
By Kevin Vendel, Head of Sales, Spotcap UK
Have your clients recently been in touch looking for funding to manage cashflow, buy new stock or refurbish their premises? If so, a fully unsecured business loan – without the need for a personal guarantee – might be the perfect solution.
1) No personal guarantee required
With a fully unsecured loan, your client does not need to provide any security and – more importantly – no personal or director’s guarantee. As considerably higher risk is involved with unsecured loans, many unsecured lenders have technology in place which quickly sifts through relevant financial information, helping underwriters make a quick and reliable credit decision. And because there is no need to check collateral or personal guarantees, a decision can often be given within one working day.
One thing to consider is that fully unsecured lending generally appeals to a niche market, namely established small and medium-sized businesses with a positive financial track record.
2) Complying with short-term business needs
Due to its nature, many financial intermediaries secure a fully unsecured loan for their clients to help them comply with short term business needs, such as bridging a cash flow gap, restocking inventory or refurbishing premises. While businesses working in any sector can benefit from an unsecured loan, this option is particularly appreciated by professional services companies as they normally don’t dispose of any assets, such as heavy machinery or a property.
For example, we here at Spotcap recently provided an unsecured loan of £250k to a branding agency. Due to expansion plans and having secured a new client, the agency was in need of a loan for fifteen months to bridge incoming payments.
3) Complementing a loan vs. co-financing
A business can apply for a short-term fully unsecured loan even if it has a longer-term asset-backed loan in place already. This is possible because with an unsecured loan there are no claims on an asset; the unsecured loan can therefore be complementary to other funding put in place, and give the business more flexibility.
Some financial intermediaries we work with also offer co-financing solutions to their clients. This means that either a bank and an alternative lender – or two alternative lenders – work together to jointly finance a project. For example, a business needs £1 million, but the asset-based lender is only able to provide £800k. The fully unsecured lender comes to help and can provide the additional £200k. Although the concept of co-financing isn’t that common, it’s a great example of exploring new solutions to help businesses succeed.
4) It’s not as expensive as you think
Several years ago, charges and interest rates for fully unsecured loans were much higher than for secured ones as lenders struggled to assess risk properly. However, due to financial information now being available in a digital format and thanks to new technology, it is much easier for lenders to determine the level of risk and set the appropriate interest rate. As a result, the interest rates of fully unsecured loans tend to be only slightly higher than those of a secured loan.
5) Offering your clients a one-stop shop
As a financial intermediary, it is your responsibility to be aware of all the financing options available in order to provide the best possible advice and service to your clients. A key aspect of this is being able to help secure the right funding at the right time and price, with unsecured loans forming part of the overall funding mix.
What’s more, offering a one-stop-shop goes some way towards improving client satisfaction and therefore retention. Ultimately, the best intermediaries will be those with knowledge spanning a wide range of products, whilst maintaining a high standard of service for their clients.
For more information visit https://www.spotcap.co.uk/