Unsecured Business Loan
Sometimes the hardest part of acquiring business loans is knowing what to ask for. If you are relatively new to the business world, every financial decision you make is one you are making for the first time … every one of them can make you or break you. If you are preparing to apply for a bank loan, you need to decide whether you want a secured or an unsecured business loan, and then determine which you and your business will qualify for.
If you’ve been advised to apply for a secured rather than an unsecured business loan, you will have to consider what you will use as collateral. Typical security includes personal residences, personal financial assets, business real estate, equipment, inventory and accounts receivable. If the idea of putting your family’s home or your spouse’s retirement assets on the line makes you queasy, you won’t like hearing that the bank will only give you credit for 50% to 75% of the value of your inventory, equipment or accounts receivable, but that is the standard practice.
If you don’t have the stomach—or the assets—for a secured loan, you will have to consider an unsecured business loan. Be warned: finding a lender willing to take the risk might be challenging, and the interest rate will be higher, but an unsecured business loan makes sense for many business owners.
An unsecured business loan allows you to retain control of your personal and business assets, but your personal and business financials will have to meet a higher standard to qualify for an unsecured business loan. Your business will have to have a record of several years of positive cash flow and responsible financial management. Exactly how high a lender’s requirements are will be determined largely by the amount of the loan requested. An unsecured business loan for more than $100,000 probably is not an option for a business in its first or second year of operation.
After you have obtained an unsecured business loan, you will likely have to comply with regularly scheduled financial reporting.
Unsecured startup loan
Question: I’m not sure whether to acquire an unsecured startup loan or a secured loan. I know there are benefits and drawbacks to both. I opened my restaurant almost two years ago, and have been showing a profit since my sixth month in business. I sold my house and put the proceeds into the restaurant. I’m nearly broke, but I have excellent personal and business credit scores. I rent my restaurant space and my house. I’d like to expand my menu, but I’ll need new kitchen equipment to do it. Is an unsecured startup loan best for me—I really don’t have anything for collateral—or should I apply for a startup loan?
Answer: You’re right about the plusses and minuses to an unsecured startup loan, but in your case, I think the benefits outweigh the drawbacks.
The upside:
• You rent your home and business space, so you have minimal debt.
• You have good personal and business credit.
• That you began showing positive revenue within so short a time bodes well for your ability to pay back an unsecured startup loan.
• Your loan amount will be relatively small.
• The lender will be happy to see you’ve invested your own assets into your restaurant. Lenders don’t want to invest their money into businesses when owners haven’t been confident enough to invest their own. The fact that you have made the investment will make getting an unsecured startup loan much easier for you.
The downside:
• You’ll probably have to pay a higher interest rate for an unsecured startup loan, though it will probably be lower than credit card rates.
• You don’t have any collateral to guarantee a secured loan, so your options are actually more limited than you think.
Don’t let the negatives scare you; your situation is exactly right for an unsecured startup loan. However, you should begin looking into a business line of credit next. You will need it to invest in inventory for special occasions when the restaurant will be especially busy. A business line of credit is also important to have on hand when you have unforeseen expenses, and in the restaurant business, that happens frequently!
Business line of credit
Question: I’m not sure if I need a business line of credit, a small business loan or a mortgage. I’ve bootstrapped my business for two years. I recently hired another employee and would like to hire two more, but I don’t have room in my current rented space. I’ve set aside enough money to buy and renovate a bigger building, but it’s hard to make payroll when I am waiting for payment. Should I take out a mortgage for another office? Should I take out a business loan or a business line of credit?
Answer:I recommend paying cash for the new space, and taking out a business line of credit.
A business line of credit a good way to cover smaller short-term expenses, like new electronics, furnishing and supplies—the sort of things you will need for a new space with more employees. A business line of credit will tide you over through the ebb and flow of A/P and A/R, and help you make payroll while you are waiting for payment. Payroll is one of the most common uses for a business line of credit.
If you can afford to move your business to a new level without going in debt, do it. Use the cash you have to invest in a new space because it is not a good idea to take on the increased overhead of a mortgage at the same time you are increasing personnel expenses.
Business lenders are not going to make an investment in your business if you have not already done so. Taking out a mortgage makes your new offices a debt instead of an asset you can use as collateral. Pay cash and lenders see you have made a huge investment and have little or no debt, and they will be happy to give you a business line of credit.
You will also be building your business credit score by staying within the limits of your line of credit and making regular payments. Moreover, you will have a higher credit line with better terms, and your next loan will be easier to acquire.
Need a loan? Get an online loan.
Your first decision will be whether or not to get a loan, but your second one will be where you’ll get a loan. In the past, small business owners went to a local bank when they needed a loan. Now, smart business owners know the way to get the best loan is to get an online loan.
One of the underpinnings of capitalism is that competition benefits the consumer, but getting quotes from several brick-and-mortar banks is too time consuming. Applying for an online loan solves that problem.
In most cases, online loan applications are approved or rejected within 24 hours, and in some cases, in just minutes. That quick turn around makes it easy to apply for an online loan with several lenders to compare their terms and rates. Once a decision is made on which loan offer to accept, the money can be electronically deposited into the borrower’s bank account with 24 to 48 hours. Read more
What type of business loan is right for your business?
Whether you have a fledgling business or one that’s been long established, at some stage of the game, you’re going to need a business loan.
Needing one and getting one are two different things, though. You can maximize your chances of getting a business loan—any business loan—by knowing what to expect from the lender.
At the very beginning – At this stage of the game you’ll need seed money, but you can’t get it as a business loan from the bank. You’ll have to use your own assets, get a business loan from family or friends, or take out a personal loan. Wherever it comes from, this money will be used to create your business plan—an essential for starting a business and getting a loan later on.
Almost there – This is the time for a startup loan to purchase inventory, and to lease or buy equipment or the location for your business. The importance of a thorough business plan can’t be overstated, but that alone won’t get you a business loan. You’ll need to show the lender that you’ve invested a considerable amount of your own financial assets, and are prepared to contribute more.
When you apply for this first business loan, a big part of the bank’s decision is going to be based on your personal character, reputation and financial history, so be prepared.
Well underway – Get a business line of credit before you need it. There will be times you need to increase inventory, do some additional hiring, replace equipment or respond to a sudden emergency. You’ll need to show the bank you have enough excess revenue to make the loan payments, so don’t wait till you’re in dire straits to apply
Ready for the next stage – Your business plan should be evolving as your business does. When the time is right for expansion, you’ll use that plan and your projections obtain a business loan to help you continue growing your business.
Contact American Unsecured and let one of the nation’s largest loan-consulting firms help you obtain your business loans. Since 1999, their experience and bank partnerships have helped others acquire hundreds of millions of dollars in personal and business loans.
No Collateral Loan
Collateral: Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default, also called security.
That means if you put up collateral for a loan, your assets can be seized; that is, you can lose your house or car. Another way to think of it: if the lender knows he stands to gain your house or car, he’s got to feel much more secure in lending the money you need.
Now look at unsecured, another way of saying no collateral loan: Read more