If you run a small business that is in the start-up phase or is in need of expansion, you are probably looking for reliable sources of funding. If you cannot spare any assets as collateral to get a loan, an unsecured business loan is your best bet. From meeting urgent cash requirements to funding capital expenditure, it scores points over secured loans for its flexibility of use and other benefits. A well-planned strategy to utilize these funds can help get new ideas off the ground and facilitate the growth of your business.
What is Unsecured Business Loan?
Unsecured Business Loan is a short term advance to businesses for meeting working capital needs and funding future growth. The loan approval requires no business or personal assets as collateral and is based on the creditworthiness of the borrower.
Since, the lender takes more risk in issuing the loans compared to the secured equivalent, the interest rate charged is higher. But, there are other advantages which make it a preferred choice for small businesses and start-up enterprises.
Some of the benefits of an unsecured business loan include
- Minimum documentation
- Easy and quick approval, subject to good credit score
- Flexible repayment tenure ranging from 1-5 years
For minority entrepreneurs looking to secure funding for their small businesses, unsecured business loans can be a vital resource. These loans, which do not require personal or business assets as collateral, offer a flexible financing option for various purposes, from startup capital to business expansion. In this way, unsecured business loans, including specialized options like business loans for minorities, contribute to the accessibility of capital for underrepresented groups in the business community.
How will it help your business?
A business can benefit greatly from the use of unsecured business loans, apart from meeting funding requirements of the business. Here is how it can help your business.
. Assets can be deployed for more productive use
As unsecured business loans are approved based on the borrower’s creditworthiness, it takes away the risk of staking valuable assets as collateral.
In case of default where secured loans are concerned, the borrower loses all rights to the asset and the asset can be liquidated by the lender. There is also a risk of forgoing the asset at a lower valuation, irrespective of the total amount due.On the other hand, unsecured business loans let you deploy your assets for more productive use. This helps in greater income generation and facilitates quick repayment of loans.
. Build credit history
Taking an unsecured business loan is a good way to build a positive credit history. Going forward, you might require more funds to fuel the growth of your business. To get loans at competitive rates, you need a good credit score. Availing unsecured business loan and making timely repayment helps you to build a good credit score.
. Flexible Borrowing Option
With a broad range of loan types available under unsecured option, businesses can benefit hugely from utilising these options. Loan options like business cash advance and overdraft facility allow the business owner to borrow the required amount of funds without using the whole amount that was sanctioned. The interest is charged only on the borrowed sum and facilitates partial repayment without any penalty.
Uses for Funds Acquired through Unsecured Business Loan
. Enhance Cash Flow
Businesses require a constant and smooth flow of cash for its day-to-day operations and to meet other obligations. Any shortage of funds can trigger a fall in business and reduce your ability to thrive in a competitive market.Taking unsecured business loans at such times, not only helps to keep the day-to-day affairs running smoothly, but also powers continued growth.
. Stock up on Inventory
Businesses always need to maintain a minimum stock of inventory, also called safety stock to ensure smooth supply flow. Falling short of supply when there is a demand due to paucity of funds is the least desirable thing to happen. Using an unsecured business loan to maintain your stock level at warehouse helps to meet the constant demand from customers every-time.
. Finance New Equipment
The requirement of new equipment or the need to replace older ones can crop-up anytime. And, not using the right equipment affects both the quality and the quantity of products.With instant approval process of unsecured business loan, it helps you to easily afford the cost of new equipment and machinery.
. Expand Your Business
Every business strives to grow profitably and with the least possible exposure to debt. But, with constant change in business dynamics, it is a very difficult proposition and delaying expansion has huge implications on future business viability.Using an unsecured business loan, you can easily fund business expansion plans without delay and maintain competitiveness.
. Renovate and Revamp your Business
Renovating and revamping your business is an expensive process, but it is an investment thatgives good returns over time. Hiring a marketing agency or launching campaigns and promotions to boost sales and revamp the image of your business is important to increase the goodwill and market standing your business. An unsecured business loan can provide the funds to accomplish this.
. Take on Bigger Projects
Opportunities do not wait for anyone and failing to cash in due to shortage of funds is not desirable. Using unsecured business loans to exploit available opportunities opens up multiple avenues and brings prosperity to business.
What are the factors affecting eligibility criteria?
There are multiple factors which determine your eligibility criteria for unsecured business loans. They are:
- Years of Existence of Business
- High Credit Score
- Business Stability
- Strong Balance Sheet
- Industry overview
How old should your business be?
Lenders prefer businesses with a proven track record and it is important that the business should be operational for at least 3 years.
How old should the applicant be?
Age is not the factor in availing unsecured business loan. An applicant who has demonstrated strong managerial and leadership skills, irrespective of the age is preferred by lenders.
What are credit score requirements?
The applicant should have a credit score of 750 and above to meet the eligibility criteria for getting an unsecured business loan.
Conclusion
As a business owner, what you need most is a quick and easy flow of funds at the time you need most. An unsecured business loan comes in handy in these situations. While it may be a relatively expensive source of finance, but it is a ready solution for your short-term needs. Using the funds with a well thought-outstrategy can help you attain your goals and empower you to make use of all the opportunities that come your way.
