Getting unsecured business loans is much harder than traditional business loans because it all depends on the merits of your business. The lender is assuming you are going to hold up your end of the bargain. If you don’t, it leaves them thousands of dollars in the hole. This guide will show you how you can go about getting unsecured business loans.
What is an Unsecured Business Loan?
It’s important to understand exactly how unsecured business loans work first. The principle is simple. You take out a certain amount of money, agree on the monthly repayments, and then you pay the money back in a specific period of time. The difference is the money isn’t secured against anything. If you enter bankruptcy, the company is liable for the money, but you personally aren’t. This means that if you work out of a home office, for example, the lender can’t take you to court and have your house repossessed. They also can’t seek repayment from the managing director’s personal assets.
Finding a Lender for Unsecured Business Loan
Your first order of business is to find a lender who will willingly lend you the money. You may decide to approach a bank. You also may decide to approach the government, if they happen to have any local programs for businesses. On the other hand, you may opt to go the private route. This is where a private investor supplies the money and you organize a deal with them. This may come in the form of an individual or a private company. When it comes to finding a lender, it’s a matter of doing your research and shopping around. See what rates you can get and how much of your loan you can secure.
The Key to Securing an Unsecured Business Loan
In order to increase your chances of securing one of these loans, you have to understand how lenders work. First of all, they are naturally more cautious because they are taking a bigger risk. You need to ease their concerns through providing a solid business plan.
This business plan should be concrete and realistic. Experienced lenders will see through inflated figures and any extra optimism. Make sure you are a realistic. If securing the loan seems like a long shot, it may be worth reducing the amount you are asking for. Remember, the name of the game is to reassure the lender that there’s not as much risk involved.
What is a Business Credit Score?
Never confuse your personal credit score with a business credit score. If your business is already established, the latter is the score that counts. This shows how trustworthy you are and many lenders won’t even speak to you until you have a high enough score. You can easily build up your business credit score through obtaining a business credit card and using it. Pay your bills on-time and you’ll steadily build your credit worthiness.
Ultimately, your ability to get an unsecured business loan is often down to the lender. You can have everything in a row and a lender still won’t give you a loan for some imaginary reason. But don’t lose hope because there are plenty of lenders around willing to lend you money.
Banks are particularly cautious these days, so you may have less success with them. The financial crash left massive shockwaves deep around the entire lending industry. If you are having trouble getting the loan you want, consider tweaking the loan. Offer to pay higher interest rates or reduce the amount you are asking for. Sometimes you have to negotiate in order to snag the deal.
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.