4 Steps to Getting a Small Business Loan Without Collateral

Although banks have become more active in small business lending in the years following the 2008 financial crisis, only the most creditworthy businesses are considered for financing, with most banks requiring some form of collateral to secure the loan. Such lending requirements create challenges for smaller businesses with few assets, or for business owners who don’t want to risk their personal assets. However, a number of non-bank lending sources have emerged, providing small unsecured business loans with more access to financing than ever before, without the need for collateral.

Most any business, regardless of stage or size, has access to unsecured financing through a number of alternative lending sources. Although they typically do not require any collateral, they do charge higher interest rates than traditional banks. In most cases, you can qualify for financing based on your credit history and a record of generating a certain amount of revenue. Although obtaining an unsecured loan through a non-bank lender may be easier than the preparation needed for a traditional bank loan, there are still some essential steps required to obtain the best possible terms.

Here Are 4 Steps to Getting a Small Business Loan Without Collateral

Double-Check Cash Flow Projections

Unless you have a high credit score and a strong record of revenue generation, you are likely to be saddled with a high interest rate on an unsecured loan. The annual percentage rate (APR) can range from 10% for the most creditworthy borrowers to triple digits depending on the lender and the type of loan. Before searching for a loan, assess your cash flow projections to ensure you have sufficient funds to repay it. Failing to repay the loan will damage your credit score, making it more difficult to obtain any type of financing in the future.

Clean up Your Credit

Clean up your credit report and raise your credit score. Although it is possible to obtain an bad credit unsecured loans, you will pay higher interest costs. The quickest way to raise your credit score is to lower your credit utilization ratio, which accounts for 35% of the score. The ratio reflects the amount of debt you are carrying in relation to the amount of your available credit. If your total debt exceeds 25% of your available credit, it is hurting your score. Pay down as much debt as you can to improve the ratio. Also, check for any reporting errors that can be removed and don’t open any new accounts.

Create a Solid Business Plan

If you haven’t already, develop a business plan that includes your business purpose, how it makes money, a growth strategy, detailed financial statements, cash flow projections and the purpose of the loan. Many types of non-bank lenders won’t ask you for a business plan. However, you will have to demonstrate a strong record of revenue generation for at least a year. If you go to a peer-to-peer or marketplace lender, you will need to show potential lenders why you would be a good risk.

Research Lenders

Most non-bank loan specialists direct their business entirely on the web. Despite the fact that they all promote fast credit endorsement and financing, such organizations fluctuate in a few ways.Sorts of financing: Some banks offer settled credits while others offer variable advance rates. You can likewise discover banks that offer credit extensions. Stay away from vendor loan financing, which is the most exorbitant.

Qualification: Most non-bank lenders consider your credit score and business revenue, but they have varying levels of qualification. For instance, one lender may require $100,000 of annual revenue for a full year, while another may only require $50,000 for half a year. They may also have different minimum credit score requirements.

Prepayment fees: If your cash flow allows you to pay off the loan early, you don’t want to pay a prepayment fee.

Credit reporting: Some lenders report your payments to the credit bureaus while others do not. If you want to build your credit history, ask if the lender reports payments.

Obtaining an unsecured loan from an online, non-bank lender may not be nearly as difficult as with a traditional bank, but the costs can be significantly higher. To keep costs down, prepare as if you are qualifying for a bank loan. The better prepared you are, the better the terms you are likely to get.

How to get small unsecured business loans if you are starting a new business and need business loan finance.

Why Will you Need a Business Loan ?

If you are thinking of starting a new small business or have an existing business that you are expanding then it's likely you'll need some form of financing to get things started or to improve your immediate cash flow. This article shows you how to obtain unsecured business loan finance for small business owners.

Why Unsecured Loans ?

Certainly new business owners find things difficult when it comes to financing because 

a) they have no business and therefore no assets to secure any new debt against and 

b) they don't want to secure any business loan against their main personal assets for example their house because of the risk it imposes.

Existing business owners may also not have many real tangible assets in their business that they can secure debt finance against and are looking for unsecured loans - those loans from banks that are not secured against assets, ie: unsecured.

So what are the alternatives to business owners looking to secure a business loan at favorable rates?

Choosing an Unsecured Business Loan

If you search on the internet you will find many small unsecured business loan providers but many will want to charge you an interest rate that could be three or four times the current bank base rate which makes it prohibitive to ensuring profits even exist in a business.

It's likely you'll secure finance at these high rates with relative ease as the lender mitigates their risk with the higher finance charges. But for most people this is not a route they want or need to take.

If you are tempted just to take a loan because it's available think long and hard about these high rates and start to shop around. And spend valuable time in your quest. There are many companies who want to lend you money and rates should be competitive these days because of the current credit crunch.

Mortgage rate lending is reducing so banks and other lenders are looking around at other profitable markets and unsecured loans is just one of them especially to business owners.

Start off your search with the major high street banks and look at all of the current offerings. During certain times of the year most banks and building societies actually have sales for most of their consumer lending and associated business products.

So take advantage of any deals that may be available to cut the rate of interest you may be paying.

But the standard most reliable method is to talk directly with your bank about your business and take along your business plan.

Major Banks Loans Unsecured

Lending in the standard way is still popular and probably brings about most success for budding entrepreneurs. Banks will lend to new businesses without the new business owner having to put up any collateral and there are also government based grant and lending schemes that the banks run to assist in getting new businesses started.

There are of course other methods to raise finance for a business. Debt financing covers bank unsecured loans as described above and also includes any monies you can get from friends and family or if you increased your own mortgage on your home. Equity financing is another way by selling shares in your business.

You should take advice before taking on any form of loan whether it's an unsecured loan or secured loan.

How to Apply for a Small Business Loan

If you are looking to open, or expand, an existing business, you will need to apply for a small business loan. When applying, you will need to have documentation to accompany your loan application. Some of the documentation you will need to present to the bank is a business proposal, potential financial growth, and a repayment plan as well as any required documents requested from the bank.

Business Proposal

Prior to submitting your application for a small unsecured business loan, you will need to develop a plan. The plan should address the project you are trying to fund. It should demonstrate to the lender that you understand the market and products that you are offer. Give the lender some insight as to what you are trying to do. A basic business proposal will include a summary (which provides a high-level view of what is contained in the proposal, financial analysis, competition analysis, forecast of potential growth and a contingency plan.

These items provide the lender with a sense of how well you know your business. It is important that all these areas be outlined in detail in the business proposal. Be sure to provide enough information. When a lender reads your proposal, you want them to have a clear picture of how you will use this loan, not only to raise capital to pay them back, but to be a profitable venture.

Financial Documentation

To accompany your business proposal, you will want to develop a financial analysis. The financial analysis should detail the budget on the project, financial projections, market trends and equity. These items demonstrate to the lender the viability of your business. Lenders want to invest their money into a business that will be profitable. The more research you present to them about your business and its potential profitability, the better your chances are at being approved. If you are stepping into a market that has not been tested or is very new, use comparable industries to demonstrate the potential growth.

In addition to your financial analysis, be prepared to provide copies of your personal credit record and tax returns. Lenders like to understand your credit history and how you have handled the credit extended to you.

Repayment Plan

Last, identify your repayment plan. You should factor in interest rate and repayment time. Your forecast will give the lender an idea of the time frame in which to be repaid. Include any collateral that you plan to use as a way to guarantee repayment. Using collateral will help to secure the loan and demonstrate to the lender that there is a way for them to recoup their funding should you default.

Finally, discuss your exit strategy. An exit strategy is important to address. It shows future thinking. While the exit strategy may be based only on future predictions, it still demonstrates that you understand that change is a part of business and that you are prepared to handle situations that may arise.

What Makes Unsecured Business Loans Safe For Your Small Business?

Businesses have been getting small business loans from banks for a very long time. The bank gives your business a large sum of money. In return, you put up some assets to serve as collateral. That gives the bank a tangible form of security – if you default, they get your assets. So if secured business loans have served well for so long, what’s all the talk about unsecured business loans for small businesses? Are they even safe?

Today, small business owners have more choices than ever when it comes to financing. But each business is unique. The funding alternative that’s right for your restaurant may not make sense for your doctor’s growing practice. However, an unsecured business loan offers potential benefits for a wide range of businesses. And an unsecured business loan can be used for many purposes. Perhaps it is a safe, smart choice for you.

WHAT MAKES AN UNSECURED BUSINESS LOAN SAFE?

No collateral required

By definition, an unsecured business loan does not require collateral. That’s a significant safety net for your small business. And for you as the owner. You don’t have to worry about losing vital business (or personal) assets if something goes wrong and you can’t repay the business loan. While that’s a benefit for you, it increases your lender’s risk. Without collateral, they will find another way to reduce their risk, such as charging higher interest rates.

That being said, for many small businesses, eliminating the need for collateral opens doors. You may not even have any assets to secure business funding. So a traditional business loan is out of the question. An unsecured business loan is your only option. Fortunately, there are several different types of unsecured financing tools for businesses.

Higher approval rates

Banks are notoriously stingy when it comes to small business lending. But your chances of approval are better if you seek an unsecured merchant loan. That’s “safe” because you’re more likely to get the money you need. With that money in hand, you will have enough cash to protect day-to-day business continuity. Or support near-term growth. Your business is safer because it’s stronger.

Fast funding

Obtaining an small unsecured business loan is faster because the lender doesn’t have to spend time appraising your collateral, filling out forms, waiting on documents from other sources, etc. The process is simpler and more streamlined.

Speedy funding can make all the difference for small businesses. You rarely have the luxury of waiting weeks or months for a traditional loan to come through. Or not. Quick approval and funding can pull you out of a jam, whereas waiting could kill your business. It can also give you ready cash to take advantage of a timely opportunity. Just as with higher approval rates, the speed of an unsecured loan can strengthen your business.

You can borrow more

Maybe. Some experts disagree about this. With any secured business loan, the amount you can borrow depends on the value of your collateral. And you cannot borrow 100% of that value. So you may be able to get a larger unsecured business loan, because you aren’t limited by asset value.

Bad credit isn’t a deal-killer

When your business and/or personal credit isn’t great, it’s easy to become discouraged. The right type of unsecured business loan can bring hope and renewed prosperity. And it can help you improve your credit score. At United Capital Source (UCS), we believe each business deserves every chance to succeed. And we can help. So let’s talk.

Greater flexibility

Traditional business loans from banks and similar financial institutions come with fixed monthly payments. Even if you qualify, that repayment schedule might present a hardship for your small business. Alternatives such as an unsecured business loan can provide different repayment options. Here at UCS, we offer five payment choices:

• Daily
• Weekly
• Bi-weekly
• Monthly
• A percentage of credit card transactions

These options allow you to match repayment amounts and timing with your expected cash flow. That can be very different from one business to another.

With some unsecured funding solutions, there is nothing to repay. Accounts receivable financing is an example. You sell your outstanding invoices to a third party at a discount. They are repaid when they collect the full value of those invoices. Instead of charging interest, their profit comes from collecting more than they paid you for each receivable.

Build a long-term relationship with your lender

Some types of unsecured financing for businesses make money available on an ongoing, revolving basis. Over time, the lender gains confidence in your consistent repayment track record. They may be willing to lend your business more money in the future. While good relationships are always important for business success, here at UCS we caution against zeroing in on a single lender.

We have great working relationships with hundreds of diverse, top quality lenders. But we aren’t tied to any one of them. That way we can match your current funding need with the ideal source and type of small business loan. Sticking with a single company can hamper your ability to get the best deal next time around. That’s not safe because it puts your business future at risk.