Unsecured loans are the most popular type of loans for equipment and vehicle financing. But are they for you?
Whatever industry you’re in, staying up-to-date with the latest available tech is hugely important. Whether it’s a new oven, a truck, or just some new office furniture, investing in equipment is an important success driver.
Many lenders offer loans and provide funds to help small businesses purchase equipment, supporting growth and operational needs.
Unfortunately, many companies operate on a tight budget and however important investing in equipment may be, they just can’t spare the expense.
That’s where unsecured business loans come into play. Unlike a secured loan, which requires tangible assets such as property or equipment as collateral, unsecured loans are based on the borrower’s creditworthiness and do not require any tangible assets. The main difference is that secured loans are backed by assets, while unsecured loans are not.
Unsecured equipment finance is a popular financing option for small businesses and businesses that may not have tangible assets to pledge. Small business loans and other financing options are available for various business needs, and unsecured loans are one such option.
Keep reading to find out whether this is the right solution for you.
What Are Vehicle and Equipment Unsecured Business Loans?
Getting a loan can be risky, especially if solvency is an issue. Defaulting on a loan can cost you quite a lot and even destroy a business in some cases.
This isn’t the case with unsecured loans. Unsecured equipment finance does not require you to provide security or a security interest in tangible assets, as approval is often based on your personal credit and overall creditworthiness. As the equipment itself is the collateral, there’s no need to put anything up front. One benefit of this type of lending is that you can borrow funds without risking your personal or business assets. In addition, you don’t jeopardise your ongoing finances in case you can no longer service the loan.
If this happens, the lender will use the equipment as a way of repaying any outstanding balance. Before you borrow, it’s important to carefully review the loan agreement and ensure you understand the repayment plan, including how loan repayments are structured. Responsible lending practices are followed to make sure the repayment plan is affordable and suits your financial situation. But as long as you meet the repayments, you can use the equipment without worry. And once you repay the loan in full, you gain ownership of the equipment.
Sounds like an attractive option? Let’s see why this is the case.
Advantages of Unsecured Equipment Loans
Unsecured equipment loans are a good option for a business looking to invest in equipment without a significant outlay. These loans can help a business grow by providing funding for new equipment or machinery, supporting expansion and improved operations.
There are many benefits to this form of financing. Let’s take a look at some of them.
1. Flexibility
Banks are well-known for their rigid repayment schedule. Being late by even one day often results in a swarm of phone calls. This can be quite stressful and puts a strain on your everyday operations.
Getting an unsecured loan from independent lenders is different. They often offer flexible repayment that meets your business needs. This means you can get the equipment needed without putting undue pressure on yourself or your business.
You shouldn’t shy away from asking your lender to create a repayment scheme that works for you. Go ahead and make your suggestions, and you just might make a deal that works for both sides.
2. Full Ownership
When deciding between a lease and a loan, this is obviously the best argument in favour of the latter. Once you’re done repaying the loan, the equipment is all yours to do whatever you please with it.
If the shelf life of your equipment is long, this is one of the main reasons why you should go with a loan. However, this is a double-edged sword, and we’ll show you the other side a bit later.
3. Tax Write-Offs
Who doesn’t like to save some money on taxes? This is exactly what you can do if you take out an unsecured loan.
As long as the equipment that you’re using the loan for is for business rather than personal use, you’ll be eligible for tax breaks on the interest.
4. Short Approval Time
If you’ve ever taken out a loan from a bank, you know that you have to mess with a ton of paperwork and wait days, or even weeks, to get approval.
This doesn’t happen with equipment unsecured business loans from other lenders. The application usually takes a few minutes, and you only need to submit some basic documents. In addition, you might be able to get the loan on the same day, so you can get the equipment you need right away.
5. Ease of Approval
Banks generally look at things the wrong way when seeing whether you qualify for a loan. They only look in the past and scrutinise every minor issue.
Most independent lenders don’t do this. A good lender will take a business’ potential into account rather than just numbers from the past. This means that they’re much more likely to approve the loan than banks.
Disadvantages of Unsecured Equipment Loans
There aren’t that many downsides to taking out an unsecured loan. The application process is straightforward, and you can get a deal that works for your business.
However, there are some things that you should be aware of before you apply.
1. Responsibility
Remember when we said that there’s a downside to full ownership of your equipment?
One of the main risks that you expose yourself to is that your equipment might become outdated. This will inevitably happen to tech equipment, but the wear and tear of other equipment might be applicable too. In this sense, sometimes leasing the equipment may work better for your business.
If you’re taking out a big loan, make sure that it’s for something that will last you long enough after you’re done repaying the loan before you need to replace it.
2. Restrictions
One of the biggest drawbacks of this form of financing is that it’s too specific. As the name suggests, the only thing that you can buy is equipment or a vehicle. Unsecured business loans for these purposes require you to time them well if you want them to make sense.
Before you apply, make sure that you can cover your business’s other expenses.
Interest Rates and Repayment Terms: What to Expect
When you’re considering an unsecured business loan to purchase equipment or vehicles, understanding the interest rates and repayment terms is essential for managing your business’s cash flow and long-term financial health. At Unsecured Finance New Zealand, we’re committed to providing small business owners with flexible asset finance options that support your business goals—without the need to put your business assets or personal assets on the line.
Our unsecured business loans feature competitive interest rates, typically ranging from 8% to 25% per annum. The exact interest rate you’ll be offered depends on several factors, including your business’s credit rating, the loan amount you’re seeking, your business financial statements, and the repayment term you choose. We offer both fixed interest rates and variable loan terms, so you can select a repayment schedule that best fits your financial situation and cash flow needs.
So Is It a Good Idea?
Generally speaking, yes. Unsecured business loans are a good way to get the equipment or vehicles that you need with minimal risk. In addition, you probably won’t have to wait longer than a day to get approved.
Once you’ve fully repaid the loan, the equipment is all yours. Just make sure that you’ll still be able to use it in the future.
Unsecured Finance New Zealand is one of the best lenders for this type of loans. Click here to learn more about unsecured business loans and figure out whether they’re the right choice. And if you know they are, fill out our application form to apply in a matter of minutes.
