What's different about Spotcap unsecured loans?
How does an unsecured business loan work?
Spotcap loans work in the form of a business line of credit. Below is an example of how an unsecured business loan can work. It illustrates Spotcap’s approach, which is focused on simplicity and flexibility
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It’s your business, so you choose how to use the funds we make available through a business line of credit for a variety of long, and short term activities:
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In depth: Unsecured business loan vs. unsecured line of credit
Information you need to know as a business owner
An unsecured business loan and an unsecured line of credit are alternative funding options based solely on a business’s creditworthiness, history and financial condition. These types of financing don’t require any collateral or personal guarantees, making them an attractive solution for healthy small and medium sized businesses that don’t want to tie up valuable assets.
An unsecured business loan and an unsecured line of credit are the most common non-collateralised financing options available to SMEs. Each have their individual pros and cons, depending on what a business requires.
- Business loans operate as term loans, meaning they provide a single amount of credit and need to be returned within a certain timeframe. Even if the borrower doesn’t use all of the funding, they are obligated to repay the full amount with interest
- Business loans are generally better solutions for long-term commitments (2+ years) when the borrower knows exactly how much additional financing is required and why. For example, if a restaurant owner wants to change location and needs funding to purchase property, a business loan is better suited to them
- If a business wishes to repay their loan earlier than pre-arranged, the closing costs can be substantial and need to be factored in
- When it comes to interest rates, business loans operate with fixed numbers and monthly repayments don’t fluctuate. While this makes it easier for businesses to plan ahead, it also means that their repayments can be higher in the long run compared to other financing options
Business lines of credit
- Business lines of credit give a borrower more flexible access to funding. A lender agrees on a maximum amount of credit available to a business (e.g. $100k). From this, a borrower can withdraw as much or as little as they like, according to their business needs – a process known as ‘drawing down’
- Obtaining a line of credit is more useful for shorter timeframes of up to 12 months – for instance, when businesses are experiencing spikes in growth or demand and would like to have available funds for unforeseen expenses. This is why it is sometimes referred to as a ‘safety net’ to cover a shortage of working capital
- A business line of credit can sometimes be paid earlier than agreed without incurring additional fees
- With a business line of credit repayment amounts vary month by month. Businesses pay interest on the amount of credit that’s outstanding. The more that’s paid back, the smaller the monthly payments become
A business loan is a financial solution better suited for situations where a large long-term investment is required and the necessary expenses can be predicted.
A business line of credit is a more suitable product for businesses that need more working capital. It helps to manage spikes in demand and cover unexpected costs in a more short-term capacity.
Business loan calculator