The unsecured business loan market has grown at a rapid rate over recent years. This growth has been largely driven by a large number of new lenders entering the market and demonstrates the level of demand for unsecured business loans from small and medium sized businesses. One online non-bank lender has provided over $400m of loans, mostly over the last 2 years period that on the assumption of an average loan size of $30k, represents loans to over 13,000 businesses.
So what unsecured business loan products are available in the market and why have they been so popular with small and medium sized businesses?
The non-bank unsecured business loan market can largely be segmented into 2 lender types being the online lenders and marketplace lenders.
Online (or balance sheet) lenders
There have been over 10 new online unsecured business loan lenders enter the market in Australia over the past few years. These online lenders are typically backed by institutional funders and looking to focus on providing small unsecured business loans to small and medium sized business. This is a market that the banks have never been strong in due to their manual credit assessment processes. These lenders are typically leveraging technology to automate a large component of the assessment process to shorten the approval process to a matter of hours.
These lenders all have a slightly different loan offering through their application process, assessment methodology, risk appetite and loan product though they are all broadly offering a short term (up to 12m), fully amortising unsecured business loan of up to $250k with a quick and efficient loan approval process.
The obvious benefits to business is the availability if a new pool of capital for short term business loans and the quick and easy approval process. The major thing to look out for is the interest rate as there is a large variance in pricing (and full transparency of costs) between then different lenders.
Marketplace lending for unsecured business loans is slightly behind the online lenders in term of development and the levels of loans funded to date. Nevertheless, the market is starting to get some good traction with an increasing depth of investors and is now providing an attractive proposition for businesses.
Marketplace (or peer to peer) lending in the business loan market is where a pool of investors provides a business loan. The marketplace platform will typically carry out a level of analysis for their investors who then decide if they’d like to participate in the loan process. If they choose to participate, the investors will then bid in an online auction type process to provide a specific portion of the loan at a certain rate. Once the auction finishes, the final interest rate is determined and loan documents signed between the business and marketplace platform.
The unsecured business loans available through marketplace lenders are typically longer term than the online lenders (1 to 5 years) and generally at rates below that offered by the online lenders.
The benefits to businesses are the availability of a long term unsecured business loans at interest rates that can be lower than that offered by the banks. The key drawback for this market at the moment is the loan size being limited to around $250k though this is expected to increase over time as the various platforms bring on additional investors.
Want to see what unsecured business loans are available to your business and on what terms? Click here for a quick 2 minute online application and instantly receive the best loan terms available or give us a call (1300 001 567) to discuss your funding requirements and options in more detail.
CreditSME is a business loan specialist that quickly and effectively arranges loans for businesses on the best possible terms available. CreditSME is an authorised representative under the Australian Credit Licence 384704 and is accredited with over 60 bank and non-bank lenders.