Updated on 3rd November 2024
Nearly 1 in 5 small and medium sized businesses in Australia are seeking working capital solutions that don’t require business collateral.
While awareness is growing, many businesses remain unaware of the financial facilities available that don’t rely on security or collateral.
So, ow does it work? How can you secure working capital without collateral to fund your business’s expansion, growth and cash flow management?
Understanding the Role of Collateral
Collateral refers to an asset a borrower uses as security for a loan. In the context of loans, particularly business loans, property is the most commonly used form of asset. In some instances, equipment, inventory and even accounts receivable can be used as collateral.
Collateral guarantees that if the business fails to repay the loan, the lender can take ownership of the asset to recover the outstanding balance of the loan.
Collateral can be important, especially for traditional banking institutions, as it lowers the risk of loan default leaving them out of pocket. For some funding facilities, using collateral can mean more favourable loan terms or lower interest rates.
The Benefits of Business Loans without Collateral
Every business is different in its funding needs, its access to assets and its long-term objectives. However, there are several benefits to business owners seeking working capital solutions that do not require collateral.
1. No Need for Assets
The first benefit and the most obvious is that businesses without substantial physical assets are not barred from applying for funding. Start-up businesses or business owners not wanting to put up their personal property as security, may preferentially seek an alternative source of working capital without the need for collateral.
2. Quicker Loans
Accessing finance and working capital through a facility that doesn’t require collateral offers a simpler application process, fewer eligibility requirements and faster approvals. This can be a significant advantage for SMEs struggling to manage their cash flow or facing gaps in their working capital.
3. Protection of Personal Assets
By not having to use personal or business assets as collateral, business owners are protected from potential loss. While unsecured business loans may come with higher interest rates and larger repayments, the benefit of not having one’s own assets held as security can be a significant advantage.
How to Secure Working Capital without Business Collateral
At ScotPac, we specialise in helping SMEs secure working capital without the need for collateral.
For businesses looking for a mid-to-long term funding solution, we recommend a tailored Invoice Finance facility. For businesses needing access to working capital in the short term, we recommend a customised unsecured Business Loan.
Let’s take a closer look at both of these working capital solutions.
Invoice Finance
Invoice Finance is a financial solution that allows businesses to access working capital without the need to use property or other assets as security. Instead, it leverages the business’s outstanding invoices – using accounts receivable as collateral for borrowing funds.
How does it work? Rather than providing collateral, your business simply submits designated outstanding invoices to ScotPac and receives up to 85% of their value in advance. The remaining balance is released once your customers settle the invoices – less any applicable fees. Invoice Finance can scale with your business, making it a great option for a wide range of SMEs.
Unsecured Business Loans
Not all business loans from ScotPac require collateral. In fact, 80% of our loans are unsecured. This means that SMEs can access fast, flexible working capital ranging from $10,000 up to $200,000 without having to offer personal or business property as security.
Unsecured Business Loans enable SMEs to access funding within 24 hours of approval, with the approval process completed entirely online and quicker than traditional secured loans from a bank.
How does it work? The Boost Business Loan from ScotPac is based on your business’s average cash flow. We lend up to 100% of monthly sales, and with no industry restrictions, this means a wider range of businesses can access quick and straightforward funding.
What can non-collateral finance be used for?
In addition to the speed at which both Invoice Finance and unsecured Business Loans can be accessed, the flexibility in what these funding solutions can be used for is a significant advantage.
1. Cash Flow Management
Whether your business faces seasonal sales fluctuations, market shocks, or general cash flow challenges, both Invoice Finance and unsecured Business Loans can help. As mentioned above, Invoice Finance is recommended for businesses looking to manage cash flow over the medium to long term, whilst unsecured loans are best for short-term cash flow management needs.
2. Fuel Growth
Businesses looking to expand may not have the cash on hand to fund that growth. Both Invoice Finance and unsecured Business Loans allows for access to working capital to take advantage of market opportunities. The right option from both of these finance solutions will depend on your business’s growth plan, time horizon and business objectives,
3. Capital Disruption
Even businesses with strong cash flow management can suffer from external market shocks or changes to customer demand. When these capital disruptions occur, it can be difficult to fund ongoing operations or weather out the macroeconomic storm. Without needing assets as collateral, Invoice Finance and unsecured Business Loans offer accessible and fast access to much needed cash.
4. Asset and Inventory Investment
If your business needs to invest in new assets, such as machinery, stock or equipment, unsecured loans can be invaluable. Alternatively, Asset Finance allows businesses to acquire new or used assets – supporting both immediate operations and long-term growth.
5. Purchasing a Business
For entrepreneurs seeking funding to help purchase an existing business, both Invoice Finance and unsecured Business Loans can be tailored to your needs. Without the need for collateral, funding facilities are based on the average monthly turnover of the business in question and/or the creditworthiness of its customers.
ScotPac – the trusted partner for working capital solutions
Why choose ScotPac for your working capital solutions? As the largest non-bank lender in Australia and New Zealand, we bring over 35 years of experience to support over 8,500 customers and provide $23.9 billion in funding annually. But what truly sets us apart is our client-centric approach.