How To Get An Unsecured Business Loan
Unsecured business loans are a form of financing that businesses that do not have, or do not wish to put up collateral can access for use in growing business enterprises. These loans can be acquired through online platforms since traditional banking establishments require that businesses put up some form of an asset before a loan is approved. To acquire the loan you only need to apply for financing and have a good credit score.
Reasons Why You May Need An Unsecured Loan
- To Increase the Size of Your Enterprise
If your business is operating well and you have a sizeable number of customers, it may soon be time to expand the enterprise. Unsecured loans can prove important if you are seeking to open new branches or even relocate your business to a better site.
- To Increase the Inventory
All businesses at some time require the addition of new equipment, gear or stock so that the wants of consumers are met. If the stock that you require is in high demand, unsecured financing can be highly beneficial because unlike secured loans, you can access funds quickly and use them to get the materials you need to expand your business.
- To Create a Good Credit Rating
The repayment period for unsecured loans is very short. In most instances, loans have to be paid on a daily or weekly basis. By getting and repaying unsecured loans on time, you can build a good credit history with lenders. This can prove useful if you need a bigger loan in the future.
- To Take Advantage of a Unique Opportunity
In the business world, opportunities come and go in a fleeting moment. When running a business, you can see an opportunity that requires immediate investment. If you get a high potential opportunity that cannot wait, an unsecured loan can be useful in making ends meet.
- To Improve the Cash Flows Of a Business
The business world is highly fluid and dynamic. At times, you may not have the necessary cash flow to meet the demands of business partners, creditors, and suppliers. In some instances, the survival of the business may depend on you getting cash quick and fast. In such cases, an unsecured loan can prove to be a lifesaver.
- To Hire Staff
The success of a business often depends on the staff who are operating and running the business. Unsecured financing can help you cater for the expenses of hiring experienced and competent staff to help in the running of an enterprise.
Considerations To Make When Seeking An Unsecured Loan
Due to advances in technology accessing unsecured funding for businesses has become fairly easy in recent years. However, it is important to remember that nothing comes for free. Though the funds from unsecured loans come fairly quickly, there are pitfalls that can arise if such loans are taken without serious consideration. Some of the things that you should consider prior to taking a loan include:
- Reasons Why You Need the Loan
When taking a loan that is not backed by collateral, you should first carefully plan on how you are going to use the funds. Due to the quick availability of funds from unsecured sources, it is very easy to misuse the financing. When taking a loan, you should have a concrete plan on how the money will be used. Additionally, you should also have a plan on how the loan will be repaid.
- When You Need the Funds
Remember that due to the unsecured nature of this type of financing, lenders tend to charge very high rates of interest. Unsecured loans should only be taken to finance the short-term needs of a business. If you think that you will not repay an unsecured loan in a short period of time, it is better to seek a cheaper alternative source of funding for your business.
- The Terms of The Unsecured Loan
Different lenders offer these loans at different terms. In most instances, lenders dictate the terms of providing financing since all they have when offering funds to clients is faith. Prior to taking a loan, you should consider the rate and method used to calculate interest, the term of repayment being offered by the lender, the repayment schedule and penalties for breach of contract.
- The Minimum Requirements for Getting A Loan
The requirements for getting unsecured funding usually depend on the lender and the type of unsecured loan that you want. Some of the most common minimum qualifications include:
• A Good Credit Score
Lenders cannot offer any funds unless they are sure that they are investing their money in a safe pair of hands. Lenders usually check the credit score to ascertain that you have not been blacklisted by other lenders for non-repayment of loans and breach of contract.
• Minimum Business Revenue
Before being given an unsecured loan, most lenders require you to provide information on the minimum amount of money that you earn through your business enterprise. However, unlike traditional banking establishments, most lenders of unsecured loans do not do a thorough check of income records to verify this information.
• The Period an Enterprise Has Been in Operation
Most lenders do not offer an unsecured business loan for an operation that has just opened its doors immediately. To get this type of financing, you may be required to show that your business has been in operation for a specified duration of time.
• Willingness to Offer A Blanket Guarantee
Though you are not required to provide personal assets as a form of collateral in order to get an unsecured loan for a business, lenders usually require that the enterprise owner provides a personal guarantee on the loan being provided. This personal guarantee usually gives the lender the authority to attach the assets of the business or pursue compensation from the business owner in case one defaults on the terms of the loan.
- The Documents Required to Apply for A Loan
In order to get this type of loan, very few documents are needed. However, most lenders will request you to provide documents such as your social security number, business tax pin, personal taxpayer number, bank account information and in some instances an employer information number (EIN).
Ideas On How To Increase Your Chances Of Getting An Unsecured Business Loan
Lenders take some considerations into account before offering unsecured financing to business enterprises. You can shore up the chances of your application sailing through by:
- Creating A Strong Credit Score
All lenders look at the credit score of an applicant before approving an application. To enhance the chances of your application getting accepted, you should ensure that you are not negatively rated by credit bureaus. You can create a good credit report by:
• Paying creditors and suppliers
• Paying off old debts from other creditors
• Increasing your savings in financial institutions
- Gathering All the Requisite Application Documents
Most applications for these types of loans happen virtually. At no point does the lending party meet with the applicant. Loan applications are usually approved on the strength of the submitted documentation. If you do not submit all the information requested by a prospective lender, your application can get denied.
Tips For Spotting A Good Lender
There are very many lenders offering unsecured business financing in the market today. However, there is a huge difference between most lenders. The ideal lender should a loan on the following terms:
• The loan terms should be straight forward. There should be no hidden extra costs such as surprise interest rates.
• The lender should offer a loan that has flexible repayment terms and at an affordable and reasonable interest rate.
• The lender should have exceptional and high-quality customer service.
• They should have a plan to lower the cost of a loan in case one makes an early repayment.
• There should not be any hidden costs in the disbursement of a loan.
• The application and repayment process of the loan should be simple and transparent.
Advantages And Disadvantages Of Unsecured Business Loans
• The process of getting a loan is fairly easy and uncomplicated. This is because there is no rigor in the vetting of information and a lot of documentation is not needed.
• Loans are processed very fast.
• Personal and business assets are not put at risk by being used as collateral.
• Unsecured loans come at very high rates of interest due to the lack of collateral to act as loan security.
• Due to the high-interest rates on capital provided, these loans can give the applicant a high load of debt.
• Failure to pay these loans can lead to the loss of business assets and in some cases the entire enterprise.
Alternative Sources Of Unsecured Funding You Can Use To Grow Your Business
If you want to grow your business but you are not keen on receiving cash funding from lenders, there are other forms of unsecured funding that you can use to advance your business interests. Some of the most popular alternatives to unsecured loans include:
- Working Capital Loans
If you run a cashless business that operates using other modes of payment such as credit cards and online payment platforms, you can seek cash for the day to day running of the enterprise from lenders who offer merchant cash advance or invoice financing services.
When choosing this type of financing, you should be wary of the repayment terms. Working capital loans tend to have very high rates of interest.
- An Unsecured Business Line of Credit
This type of financing usually offers financial credit services to your business in small amounts of a period of time. These loans are great for a business as they typically come with benefits for making early repayments and flexible terms for accessing financing. Additionally, by choosing this type of financing, your business can get access to revolving credit facilities.
- Credit Cards for Businesses
Sometimes, you may not require a huge sum of money to finance your business. If that is the case, you should consider getting business credit cards. These cards can allow you to run your business comfortably without the ax of a huge debt hanging over your head. These cards are beneficial as they promote savings. Users of these cards also get rewards in most cases.
In conclusion, unsecured business loans can be very helpful when you are seeking to take your business to the next level. However, when seeking a loan, you should carefully evaluate all the financing options on the table before making a final decision. Making a hasty loan decision can have disastrous financial consequences in the long run as you may enter into a deal that has unfriendly terms.
Unsecured loans can be said to be a form of unspoken trust between the lender and the applicant with the premise being that the loaned amount in addition to the accrued interest will be paid on time. After receiving unsecured financing from a lender, it is usually best to pay back the agreed amount within the agreed timeframe. This can help you build your credit score and reputation among lenders. After all, you never know when you will require financing again in the future.