The SME owner’s guide to unsecured loans

Some opportunities only come once - and when they do, they might involve a significant investment. If you’re in a position where you require funding on short notice, it might be worth considering an unsecured loan.

sme owner guide to unsecured loans

1. What exactly is an unsecured loan?

An unsecured loan is one which can be obtained without using property or other assets as collateral. Approval of such loans usually depends on an applicant’s creditworthiness. In contrast, secured loans require borrowers to pledge certain assets as collateral before they are approved. Because unsecured loans are riskier for lenders, they usually have higher interest rates than secured loans, and require a higher credit rating for approval.

2. What can I use an unsecured loan for?

In general, SMEs which require additional working capital can opt to take on an unsecured business loan in Singapore such as the DBS Business Term Loan,, which enables a borrower to take a collateral-free loan of up to $500,000. Whether it is used to fund your company’s day-to-day operations such as payroll, rent or inventory payments, an unsecured loan provides flexibility which can be valuable when your business could use additional liquidity.

Explore our guide to secure business term loan for your SME now.

3. Why should I choose an unsecured loan over another loan type?

Unsecured loans offer SMEs the convenience of obtaining funds on short notice. If your business does not qualify for a secured loan, and if you don’t want to put your personal assets on the line by pledging them as collateral on a loan, an unsecured loan could be the way to go. Loan applications are usually online, and require fewer supporting documents than secured loan applications. The main advantage of such loans are the speed and ease with which funds can be assessed and disbursed – which is often more appealing to small business owners who need to improve their cashflow in a the short term.

4. How do I get approved?

If you’ve decided to apply for an unsecured loan, make sure you have all the information on hand to support your application. You’ll need to have your company’s financial and credit information handy to submit together with your online application. If you have any questions or concerns, it’s worth taking the time to speak with a relationship manager who can clarify your doubts before you apply.

5. What other important things do I need to consider?

Before deciding on an unsecured business funding, take the time to think about what the funds will be used for and who you will be borrowing money from. It's also recommended to calculate your monthly repayment and consider the business loan interest rates before applying. Businesses that need extra capital quickly to keep operations smooth, or to take advantage of growth opportunities, are likely to be better suited for unsecured loans than businesses which are planning to make longer-term decisions such as expansion or real estate purchases, which can be funded with a commercial property loan. It is also important to consider the issue of collateral: SMEs which apply for secured business loans should be confident about retaining their leveraged property and other assets. Even though such loans are able to offer access to larger sums of money, such arrangements might not be ideal for businesses with limited assets.

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