Darwin Delahaye

Outside the box: unsecured loans

Imagine this: A new client approaches you looking for a £350,000 short-term working capital loan.

Being an established and profitable professional services company, they are unable to provide any assets as collateral. As an experienced broker, you know what’s available in the market and would reach out to an unsecured lender. Correct?

The above is a perfect example of when to use an unsecured loan. However, do you stay on top of new developments and think outside the box when it comes to helping your clients source funding? For example, are you aware that an unsecured loan could complement other loan options or help diversify your offering?

Complementing a loan vs co-financing

A business can apply for a short-term unsecured loan, even if it has a longer-term asset-backed loan in place. This is possible because, with an unsecured loan, there are no claims on an asset; it can therefore be complementary to other funding put in place, giving the business more flexibility. 

Some financial intermediaries we work with also offer co-financing solutions to their clients. This means that either a bank and an alternative lender, or two alternative lenders, work together to jointly finance a project. For example, a business needs £1m but the asset-based lender is only able to provide £800,000. The unsecured lender would be able to support with the additional £200,000 as no collateral is required. Although the concept of co-financing isn’t that common, it’s a great example of exploring new solutions to help businesses succeed.

Diversify your offering

We’ve also seen a rise in mortgage brokers turning to unsecured loans to broaden their services. After securing a mortgage on a commercial premises, it’s common for business owners to look to purchase stock or equipment. So why not do this through the same broker?

A mortgage broker we recently partnered with explained how, after securing premises for a dental surgery, the same client was looking to purchase new equipment, but didn’t have the cash available to do so. The client was keen to secure funding as quickly as possible without the need for any assets to be used as collateral. After contacting our team and sending over the necessary paperwork, a hopeful query from a client soon became a £100,000 unsecured business loan — all completed within one working day.

Broaden your horizons

Many alternative lenders have entered the market in recent years and, while we will certainly see new and improved products being launched, we also expect some less successful companies to fold, and others to be acquired by competitors.

For brokers, they will increasingly need to adapt to growing technology changes and client demands. While it may have been sufficient a few years ago to specialise in just one loan product, more and more brokers have started to take their offering online and diversify. By offering a one-stop shop and continuously keeping an open mind, brokers will retain their clients, attract new ones and remain competitive.

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