Unsecured business loans are the kind of “dream financing solutions” 99.99% of the worlds entrepreneurs are looking to take advantage of as often as possible, helping them to lock down their cash flow situation and to build or grow their business as they see fit as well.
Unlike secured loans (the kinds of business loans that a lot of entrepreneurs are compelled to take advantage of for one reason or another), unsecured business loans are a lot more flexible, a lot more adaptive, and (almost always) come with fewer strings attached about how you choose to use that money moving forward.
Best of all, you never have to worry about the lender seizing the collateral that you would have had to put up with a secured loan if your business didn’t quite pan out the way you had expected it to previously.
Let’s dig a little bit deeper into unsecured business loans to find out if they are the perfect solution for your business!
What Exactly Is an Unsecured Business Line of Business Credit?
An unsecured business finance package essentially provides entrepreneurs with an open line of revolving credit that can be taken advantage of without the entrepreneur having to put up any collateral (ANY collateral) in the first place.
These kinds of loans are rather difficult to combine because they aren’t secured with tangible assets or collateral, but the more you understand about this kind of lending opportunity the better your chances are of taking advantage of it when you need it most.
A lot of people mix up no collateral business loans like these with traditional “term loans”, and while they share quite a bit of similarities at the very core they are totally different and distinct financial packages completely.
Your typical term loan solution is going to provide you with the entirety of the loan amount at one point in time, a lump sum directly deposited into your business bank account. You then have a specific block of time with which you have to repay the entirety of that loan off (the term) – covering the principal as well as any interest that may be accumulated during that term.
This might be all right for some people, but those that end up taking out bigger loans than they actually needed discover that they are on the hook for paying back the entirety of the loan and interest on the cash and capital they might not have used. These propositions can get expensive in a hurry.
Unsecured business loans, on the other hand, provide entrepreneurs with a line of credit from which they can draw from as need be.
They are still provided with a set amount of money throughout this financing package, but instead of having all of that money directly deposited to them (whether they needed all of it or not straightaway) business owners can pull as much or as little financing from that line of credit as required. Business owners will only pay back what they borrow from this line of credit and interest on the money that they borrow as opposed to the lump sum figure.
The best non secured loans offer the kind of flexibility and control over a business’s financial future that traditional secured loans simply cannot provide.
How Do Unsecured Business Loans Stack Up Against Secured Business Loans?
Because secured lines of credit are obviously safer for lenders to provide (thanks to the upfront deposit or collateral necessary to be approved for these types of loans) they are a lot easier to be approved for and are more available to business owners that are new as well as those that have less than picture-perfect credit.
If a secured loan is defaulted on the lender has an opportunity to sell the collateral to recoup at least some of their losses.
The best Unsecured business loan packages, on the other hand, do not provide this kind of security. Obviously business owners and entrepreneurs are a lot more interested in these kinds of loans whereas lenders are more interested in secured loans, and that means you’re going to go through a longer and more rigorous application process with fewer people getting approved.
To streamline your odds of success getting approved for these kinds of loans you’ll want to make sure that you:
- Have been in business for at least three years and have some sort of track record under your belt
- Have verifiable and provable high annual revenue figures that you can use to vouch for your worthiness (businesses with annual revenues of at least $180,000 usually get approved)
- Have a high personal credit score that you can point to in use to verify your likelihood of repaying no collateral business loans (a credit score of 630 and above is critical)
If you’re missing any piece of this puzzle your odds of successfully being granted in approval for the top business loans without collateral shrink significantly.
What Are My Next Steps to get an unsecured business loan?
Because you aren’t going to be on the hook for repaying an unsecured business loan until you actually start to draw from this line of credit it’s not a bad idea to go through the application process before you need this funding so that it is already in place when you do.
Before going through the application process, however, you’ll need to gather some paperwork and resources that will simplify things greatly and give you a much better shot of being granted in approval.
You’ll want these details close at hand:
- At least three months of bank statements to show that you have positive cash flow
- Profit and Loss statements so that you can “open your books” to the unsecured business finance lender
- Background details for your business (how long you have been around, the industry you operate in, how many principal owners/shareholders there are, etc.)
- Information about banks and lenders you have worked with in the past as well as contact information
- Information regarding your personal credit score
- Information regarding your personal tax details
- Information regarding your business tax details
Get all of this ready to go and you will have all of your bases covered going into the application process.
From there, it’s simply moving through the motions and then taking advantage of everything that unsecured business loan opportunities bring to the table once you have been approved!
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