Kevin Vendel

The rise of fully unsecured lending

The fully unsecured lending trend has gathered pace in recent months.

The brokers we work with often report that their clients learn of fully unsecured offerings before they do, urging them to arrange loans with these unsecured funding providers on their behalf. In a market where individuals tend not to stray from the norm, what is the appeal?

What is ‘fully’ unsecured?

Describing a loan as ‘fully’ unsecured, may seem unusual— a long-winded, clumsy phrasing perhaps — but there is an important distinction that makes an enormous difference to your clients’ borrowing experience.

Unsecured loans are made without debentures/commercial assets, but the majority of these offerings still require a personal guarantee (PG). However, some lenders have found a way to offer the same benefits of unsecured lending without a personal guarantee.

Competitive rates

Where lenders once struggled to assess risk efficiently due to limited financial documentation, interest rates were once considerably higher than those on secured loans. But nowadays, most lenders offering fully unsecured loans have technology in place which quickly sifts through financial documents and helps underwriters make reliable credit decisions to a competitive rate.

Similarly, when comparing an unsecured loan requiring a PG with a ‘fully’ unsecured loan, brokers might find themselves pleasantly surprised at the latter’s affordable pricing.

Suitable for established and profitable businesses

Unsecured lending generally appeals to a niche market, small- and medium-sized businesses that are established for a longer period of time and with stronger financials than the average enterprise. Providers are able to approve funds using technology that predicts future performance and ensures a speedy application process. As this can be done with no risk to any business or personal assets, the advantages for clients are clear.

Looking towards the future

With the number of fully unsecured loans growing and the ability to assess risk improving, it’s becoming increasingly clear that the market has far more to offer than what it used to. It’s time to tweak tradition and rethink the way we operate. Fully unsecured lending may not suit all businesses. However, if brokers continue to enhance their portfolios with a diverse range of offerings, it will only be a matter of time before unsecured lending achieves mainstream status.

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