Exploring Unsecured Business Loans for Truck Purchases

Unsecured business loans offer a viable solution for many businesses looking to build their commercial truck fleet, particularly small to medium enterprises (SMEs) that may not have extensive assets to use as collateral. But many would-be borrowers have concerns and questions about unsecured business loans, chiefly, is this a realistic option? Can you get the money you need without needing to put up collateral?

In this article, we’ll answer this question and dig into the advantages, benefits, and considerations of opting for an unsecured business loan, so you can approach your next loan application with knowledge and confidence.

What is an Unsecured Business Loan?

An unsecured business loan is a form of commercial truck finance that allows you, the borrower, to obtain the funds you need without having to post collateral as you would with a standard loan. Because there is no collateral, lenders issue these loans based on the borrower’s creditworthiness and the health of their business.

This type of financing is particularly attractive to SMEs and business owners that are new to the industry but lacking in substantial assets. However, so long as you have a solid business operation and good credit standing, you should be able to obtain an unsecured business loan without too much trouble.

What are the Advantages of Unsecured Business Loans?

Quicker Approval Processes

Because there is no need to evaluate and process collateral, unsecured loans can often be approved faster than secured loans. The improved speed of the application and approval process makes unsecured business loans a valuable option for established businesses as well, and allows them to obtain finance and quickly purchase or replace trucks in order to keep their operations running smoothly.

Less Risk to Assets

Since unsecured loans do not require collateral, your assets remain unaffected and free from any claim if financial difficulties occur and the repayment schedule cannot be met. This aspect is particularly important for business owners who do not want to risk their personal or business assets, such as their home or vehicles, and allows you to pursue a more aggressive business strategy than you otherwise might.

Flexibility

Unsecured loans often come with more flexible terms regarding how the loan amount can be used. While more traditional forms of secured truck finance such as a chattel mortgage involve the lender taking out security against the vehicle itself, the lack of collateral in an unsecured loan allows you to allocate funds according to your most pressing needs, whether that’s buying new trucks, hiring staff, or expanding your operations.

Additionally, unsecured business loans will often have greater flexibility in the loan terms and repayment schedules, allowing you to roll with the inevitable financial cycles of the industry without worrying that they will sink you.

What to Consider When You’re Choosing an Unsecured Business Loan

As we have just seen, there are many benefits to unsecured business loans, but there are also several factors to keep in mind before launching ahead with your application.

Interest Rates May be Higher

Because unsecured loans represent a higher risk for lenders, they typically come with higher interest rates compared to secured loans. For this reason, it’s important to take a beat and assess whether your need for the loan outweighs the higher costs it will incur, and whether these costs align with your business’s financial strategy and cash flow.

Credit Requirements are More Strict

The main measure that lenders use to assess your suitability for an unsecured business loan is your credit score. If your credit score is lacking or you’re still in the process of bringing it up to scratch, you may find it difficult to secure favourable terms on your loan, face stricter repayment conditions, or even struggle to obtain a loan altogether.

Loan Amounts May Be Smaller

Generally, unsecured loans offer smaller borrowing amounts than secured loans due to the increased risk the lender incurs by making a loan without collateral in place. So, even if all of the other benefits of an unsecured business loan make sense for your situation, it may end up being that you won’t be able to get the full amount you need, and may have to pursue more traditional forms of truck finance.

Tips for Securing an Unsecured Business Loan

However, these considerations don’t mean that you should write off unsecured business loans as an option for your business, and nor do they mean that you’re unlikely to get one, even if you’re not a perfect candidate. Here are some tips to improve your chances of getting an unsecured business loan.

Improve Your Credit Score

A good credit score is key to securing a loan, and there’s no better way to ensure your rejection than approaching a lender with a subpar credit score. The first step to improving your credit score is to ensure that it is accurate, and to fix any inaccuracies if it isn’t.

Next, you’ll want to start boosting your score by paying down your existing debts, closing any unnecessary lines of credit, and demonstrating your general financial responsibility by ensuring all of your existing bills and obligations are paid in full and on-time.

Although these are all practical, straightforward steps, they do take time, so don’t be discouraged if you don’t see your credit score lifting straight away.

Prepare Detailed Financial Documentation

The more information you can provide, the more successful your loan application will be. Aim to be as comprehensive as possible and provide both personal and business information, including detailed income statements, balance sheets and cash flow forecasts.

In combination, this information will give the lender the most accurate picture possible of your business’ financial health, and as a result, how much of a risk you are to lend to.

Choose the Right Lender

It’s all about who you know. As is the case when you’re applying for any loan, you don’t want to limit yourself to just one lender, and should cast a wide net to enable you to compare truck loans and ensure you’re finding the right lender for your specific situation. When you’re researching lenders, don’t limit yourself to traditional lenders like banks, as specialist lenders, like Credit One, will often have a better understanding of the unique needs of your business and industry.

When you’re selecting a lender, don’t just make your choice based on who is going to give you the best rate. The trucking industry is a volatile one, and it is often more valuable to have a lender that understands your position and challenges and is willing to accommodate them, rather than just give you a low rate.

If possible, consider working with a truck finance broker, as their industry knowledge and established relationships with an extensive network of lenders will give you the best chance of finding someone that aligns with your needs.

Develop a Strong Business Plan

If you’re new to the industry and are seeking finance for your first vehicle, it is crucial to have a strong business plan, as it will reassure lenders of your ability to repay the loan. In addition to all the usual aspects of a business plan, it can be a good idea to include information on how the loan you’re seeking, and the truck purchase it will enable, will contribute to your business growth and revenue.

Is an Unsecured Business Loan Right for You?

Unsecured business loans can be an excellent choice for small to medium enterprises looking to finance truck purchases without the need for collateral, though, as you can see, they don’t come without risk. They are a serious financial commitment with many considerations that must be assessed in the short, medium, and long term.

Provided you have done your research (and if you’re reading this then that’s a safe assumption), crunched your numbers, and know what you’re getting into, unsecured business loans present no greater risk than any other type of truck finance. That said, speaking with a truck finance specialist is always a good idea if you have any uncertainty.

How Credit One Can Help with Truck Finance

At Credit One, we have extensive experience working with businesses of all ages, shapes and sizes. As truck finance specialists, our brokers have intimate knowledge of the industry and a unique understanding of the challenges that trucking businesses in Australia face. We can help you secure a loan term, interest rate, and monthly repayments that help grow your business rather than hindering it.

Credit One offers a range of truck financing options and truck loans such as chattel mortgages, truck finance leases, and unsecured business loans for commercial trucks that are designed to help new drivers and business owners kickstart their careers. Try our truck loan calculator to find out just how affordable financing can be, or contact us for more information and to get a quick quote.

And if you’re wondering what your first truck should be, why not find inspiration by browsing the range of trucks for sale at Only Trucks today!