A large number of new online business lenders have entered the market over recent years. These lenders vary significantly in the quality of the loan products and interest rates that they offer. Some lenders offer a great funding solution for businesses whilst others have extremely high rates, hidden costs and other onerous terms and should be avoided.  

The key loan products offered by the online lenders are either a short term loan that is repaid over the term of the loan or a short term line of credit.

The key factors to look out for are the effective interest rate and any early repayment penalties. 

Interest rate - Often the most confusing aspect of unsecured business loans for borrowers, especially those priced with a factor rate. The most important thing to be aware of is the factor rate does not equate to an interest rate. The true interest rate will be determined by total interest cost and the average loan balance over the term of the loan (ie. reflecting the reducing balance of the facility with the regular repayments). CreditSME can provide you with a true effective interest rate on any business loan facility.

Early repayment costs - Not all of the unsecured business loans can be repaid early without incurring an early repayment penalty so borrowers just need to be aware of this.

Overall, unsecured business loans can be a great short term funding solution for businesses. as long as there is a full understanding of the terms/costs of the loan. Most importantly, the returns on the use of the funds from the unsecured loan should exceed the costs of the facility.