Money is what makes the world go ‘round and without it, there’s no chance of getting your incredible business venture to turn either. If the time has come for you to start thinking about ways for getting your business idea financed, then you may very well have thought about adding an unsecured business loan to your list of options.
An unsecured business loan is essentially a line of credit that’s as easy to get as a credit card. That is, if you have a close to perfect credit score.
You see, usually when entrepreneurs want to start a new business, or start expanding an already established business, personal assets such as their homes or other forms of real estate will be given in return to receiving a loan. This is called collateral.
When borrowers put up collateral for a specific amount of money given from a lender, this type of loan is called a secured loan.
Secured loans are much tougher in general to become approved for and they also take a much longer amount of time in which to receive an answer for approval. Sometimes, after someone waits a month for an answer, that answer can end up being no.
Bummer, right? That’s why business owners opt for the flip side and go with an unsecured business loan. With an unsecured business loan borrowers are granted business financing and funds quickly (in as little as seven days) and collateral is not typically needed.
Unsecured business loans are commonly given by way of a business credit card and like with most all other types of credit cards, they come with interest rates. Your personal credit score and signature is what will ultimately secure this type of loan for you, easy right?
This is why unsecured loans for business are so attractive to most small and first time business owners who don’t have substantial collateral to offer. Business owners can reap big benefits by getting access to startup money quickly without having to bother with waiting around for a nearly impossible to get secured business loan.
When entrepreneurs don’t have to give up any collateral for their business financing they must have an excellent looking unsecured business loan application to rely on. You can bet your bottom dollar that the lender will be taking a very close look at it.
Borrowers should know that their personal credit score will be held accountable and lenders will be interested in seeing high numbers with a close to perfect credit history. They will also want to see an income that proves you can repay the loan you are applying for based on their specified terms and guidelines.
Those who qualify for unsecured business financing are generally those who have a FICO credit score that is 700 or above, or if the borrower is an established business owner with an already established business credit history and their operation has been in business for a long period of time.
Approval will be more likely as the above shows positive in relation to profit and cash flow analysis. Banks will be more willing to extend unsecured business loans simply based on past profit and cash flow of the already established business. A tool like LivePlan will help you illustrate that beautifully and easily.
Some unsecured business financing facilities and lenders offer what is called merchant account financing. There are also independent merchant account finance companies who loan unsecured credit cards and loans that instead of having the borrower make payments on their loan, will charge a certain percentage of each sale that you or your business makes by deducting from each credit card transaction that is made.
This percentage constitutes a portion of the loan principle borrowed but also the interest payments that are due. Borrowers should take into consideration that merchant account financing is an extremely expensive form of an unsecured business loan.
Interest rates for these types of unsecured funds generally reach anywhere from fifteen to twenty percent per year, or if the facility is deducting from your sales, could easily spike to thirty percent taken from your profit each time a credit card transaction is made.
An unsecured business loan may be used for nearly any expenses that are surrounding your business. Small businesses typically need a large amount of equipment and supplies in the beginning before they start bringing in a substantial income.
Some of the most common startup purchases may include equipment and supplies (as we mentioned above) office expansion, remodeling, advertising, marketing or anything else you as a business owner see fit to use the money.
Keep in mind however, that unsecured business loans are likely to be more expensive to pay back and borrowers are allowed a shorter period of time to get paid up than those who opt to use collateral for a secured loan. This is because the banks take on most of the risk with unsecured loans.
Many startup companies and established organizations rely on unsecured business loans as a source of funding. Be sure you take the time to compare the pros and cons of these types of loans to others including secured business loans before making any rash decisions.
Keep in mind too, that it’s always a good idea to shop around for the best interest rates, watch out for scams and see if you qualify for any government grants or loans before making any final decisions on the business financing that is best for your organization.
If you have any further questions regarding loans for business and other options for business financing it is important to speak with a qualified or professional business consultant in which can assist you in determining which types of loans for business are appropriate for you and your personal circumstance.
And don’t forget to write a business plan!