How to Avail of Unsecured Business Loans

An Introduction to Unsecured Small Business Loans

Unsecured business loans are loans that do not require collateral on the borrower’s part. You will not have to provide any collateral that a lender could potentially take possession of if you are unable to make payments.

This loan holds more risk than a traditional secured loan, as you will likely utilize a higher interest rate. But an unsecured loan can be easier for many people to apply for, plus it is useful for those who are starting and don’t have much collateral to work with.

You can use these loans for many purposes, including expanding your business, acquiring critical assets, and many other items. You can review how much you’ll require for a loan and then choose to borrow that amount, but the cost of paying off the loan is still vital to note.

What Makes Unsecured Business Loans Valuable?

Unsecured business loans are necessary for many businesses, as a group that doesn’t have collateral can receive the funds necessary to start operations. A group can get funds from an unsecured loan in days, plus your risk won’t be as dramatic because you aren’t risking losing various assets when you take out a loan.

An unsecured loan can also help you reduce the risk of losing whatever assets you hold. Since you’re not going to lose collateral, there’s no need to worry about what might happen when you struggle with your loan.

You can also use an unsecured loan if you don’t have to borrow as much money. Unsecured loans typically come in lower values, so the process of applying and waiting for your funds likely won’t be as extensive.

Understanding Unsecured Business Loans

Unsecured vs. Secured Loans

The main difference between an unsecured loan and a secured loan involves the collateral you would use. For a secured loan, you’ll have to provide collateral that a lender can seize if you are unable to pay the loan. An unsecured loan doesn’t require you to provide collateral.

An unsecured loan will have a lower credit limit and higher interest rate, as it is not guaranteed by any assets. You will also likely have a shorter repayment term.

Unsecured loans can come in many forms, including term loans where you can get all your funds at once, and lines of credit that you can borrow from as necessary. All unsecured loan lenders provide different lending options for businesses to use. These choices will also have unique rules to utilize for your work needs.

General Features of Unsecured Business Loans

There are many notable features to see when looking at unsecured small business loans:

The process for applying for an unsecured loan is less extensive than what you’d spend on a secured loan.
Many unsecured loans are based on potential sales at your business. You can link your unsecured loan to your future business revenues.
Your risk is minimal because there’s no collateral necessary.
You won’t have to keep one of these loans on your financial books for too long. Typical unsecured loans can last for about a year or even less.

Common Eligibility Criteria for Unsecured Small Business Loans

The eligibility rules for an unsecured loan will vary by lender, but here are some of the basic requirements typical lenders hold when providing loans:

You’ll need to show a good cash flow forecast to display your ability to pay off your loan.
You must also have a good credit score. A credit score of at least 650 is necessary in most situations. Any groups that have borrowed money and paid it back in the past will be more likely to qualify.
Your business should also be somewhat established. Some lenders will only give unsecured loans to businesses that have been in business for at least one year.
Lenders may also check your revenue flow to see if you’re getting enough money into your business. A business with an annual revenue total of $120,000 or greater will be more likely to receive a loan.

All businesses have different rules for how you can qualify for an unsecured business loan. These terms are helpful when you’re trying to get the funds you require.

Assessing Your Business Loan Requirements

Be sure when finding the best unsecured business loans that you know what you require out of one. You’ll have to look at more than the basic value of the loan.

Here are a few things you need to consider before getting a loan:

How much do you plan on spending on something for your business?
What is your credit score, and are you capable of qualifying for a prime rate? Interest rates for unsecured loans are often higher, so looking at your credit score is vital.
What are your revenue streams, and do you have enough variety in these streams?
Is it possible for one or more revenue streams to be severely limited? Lenders might not be willing to provide support in cases where your future revenues are too uncertain.
How stable is your business? A business that consistently brings in revenue without lulls will be more likely to succeed.

Researching Unsecured Business Loan Options

Banks and Financial Institutions

You can choose from many places when searching for unsecured business loans. Traditional banks and credit unions are the first places you can review.

Banks often have stricter requirements for getting unsecured loans. For example, instead of a credit score of 650, a bank might require a score of 700 or greater.

Some banks might also have limits on how much they’re willing to lend to people. For example, a bank might give you as much as $10,000 for an unsecured loan. Loans with collateral can utilize higher totals.

Online Lenders and Alternative Financing Options

It’s often easier to find the best unsecured business loans from online lenders. Various online groups can provide you with loans of up to $250,000 or even more. Many online groups will require you to be in business for at least six months, and you may require a credit score of at least 600.

Online and alternative financing service providers are more willing to support businesses that need unsecured loans because they are more likely to charge higher rates. They also have lower operating costs on average, so they won’t lose as much if a borrower struggles to pay a loan.

You can also find various alternative financing choices online, including:

A business credit card; you can reach the funds in your credit card on an as-needed basis, and you may get bonuses, but the rates for a card might still be very high
A merchant cash advance; this option collects funds from your future transactions through an automatic clearinghouse
Support from a crowdfunding campaign; your funders will likely ask for something in return
Invoice factoring, where you sell outstanding invoices at a discount and receive part of your balance as an upfront payment
Assistance from angel investors; you will have to provide equity in your business in this case

Government Programs and Grants For Small Businesses

You can also find some government programs that can help you receive funds for your business use. You can check with your local government office for details on various grants you can utilize, as well as loan assistance programs from groups like the Small Business Administration. The rules for each program or grant will vary, and not all of them are unsecured. Some government programs will also provide minimal amounts of money, or they will involve the government providing a guarantee on funds if you default.

Choosing the Lender For the Best Unsecured Business Loans

You will find many lenders who provide unsecured business loans, but be sure you know who can work for you. Here are a few tips to use when choosing a lender:

Look at the loan amounts and lengths a lender can support. Select a lender that offers loan terms that fit your needs.
All lenders have different eligibility requirements. Make sure when finding someone that you meet those standards.
Review the interest rates, down payments, and other fees necessary.
Check reviews from prior customers to see what they have to say about a lender’s loan services. Some reviews might suggest that a lender isn’t very legitimate.

Preparing the Loan Application

While the process for applying for an unsecured loan isn’t as extensive as it would be elsewhere, the effort still entails many steps. Here are a few points for how you can prepare your loan application:

Figure out how much money you will require from your loan.
Look at how much access you’ll require when reaching your money. You can get all your money at once with a term loan, or you can borrow funds as necessary with a line of credit, for example.
Review how much you can afford to borrow based on potential loan expenses. Avoid borrowing more than 10 to 20 percent of your annual revenue if possible.
Look at how much time you need your funds in. You might get a lower rate if you put in more time before you receive your funds.
Get the necessary documents for getting your application ready.
Review any other terms necessary for getting your loan ready. All lenders have unique rules for how you can get your loan running.

What Documents Will Your Application Require?

You’ll need to provide various documents in your loan application. Some of these documents include these items:

Business formation documents
Employer Identification Number
Licenses or permits for work
Business plans
Bank statements
Personal financial info, including your last few tax returns
Business balance sheet
Cash flow statements
Any payables and receivables you currently hold

Be sure whatever documents you have are as thorough and recent as possible.

Submitting the Loan Application

You can then submit your loan application after you get the necessary documentation. Talk with your prospective lender about how the application process works, and make sure you have everything on hand.

Be sure you also review the fine print for a loan. The terms will display rules for paying your loan, any necessary fees, and how you can cover expenses.

A lender can provide your funds in as little as twenty-four hours in some situations. It may take days, but the timing is still shorter than what you’d require from a secured loan.

Conclusion

The steps for getting unsecured business loans are easy to follow. You’ll need to collect enough documents illustrating your business’ assets and cash flow. Be aware of how much money you’ll require, and figure out the means for how you will access your funds.

Make sure you have enough proof of your ability to handle loans as well. Watch for various lender types, as some groups might be more willing to provide funds than others. Every group also has unique terms you can follow.

You’ll have many choices to explore when finding unsecured business loans. Your options are plentiful, and the ways how you can utilize those funds are countless. Take note of your future business plans, and see what can work for you.

You can also talk with us at the Wheeler Group about your needs for finding business funds. We can assist you in finding different options that can work for you.