What is the best way to obtain an unsecured business loan? It is much easier to qualify for this kind of small business loan than it is for a long-term SBA loan or another type of loan. All you need is good credit and annual revenue; you don’t need to provide business assets or personal assets as collateral as you do for a secured loan. But before starting the application process, you should figure out how unsecured business loans work, how much of a loan amount you need and how you will repay the loan, and whether unsecured business loans are the best choice for your business.
That might sound a bit overwhelming, but we’ve broken down the entire process to obtain an unsecured business loan into four easy steps to make getting the capital you need a breeze:
- Learn about unsecured business loans
- Assess your company needs, set capital goals, and plan to repay the loan
- Decide if unsecured business loans are the best choice for you
- Apply for the loan and start leveraging the capital to grow your business
Step One: Learn How an Unsecured Business Loan Works
Deciding to obtain an unsecured business loan or other small business loans is a serious matter and you should learn as much as you can about the type of solution that you are considering taking out. The last thing you want is to be surprised by the repayment terms and potentially default on the loan because you hadn’t done enough research beforehand. You owe it to yourself and to your business to be an informed consumer and make the best loan choice possible for the success of your company. So before you start applying for small business funding products you should read up on unsecured business loans.
Understanding the details of unsecured business loans can help you tell whether or not you will qualify for the products (so you can avoid wasting time and energy applying to a loan you won’t get), empower you to choose between unsecured loans and other financing options like merchant cash advance, and prepare you for the realities of repaying the loan.
What exactly is an unsecured business loan and how does it work?
As the name implies, unsecured business loans do not require you to put up business or personal assets as collateral for you to obtain financing as traditional or secured products do. This can have several advantages for you and your business. First, it means that you don’t have to have significant business assets to get the capital you need. Second, it results in you taking on less overall risk for the loan since you don’t put anything specific up for collateral.
But reducing your risk means increasing the risk to the lender. Traditional banks tend to avoid unsecured financial instruments for this reason, but online lenders often provide these kinds of small business loans. However, because they do not have any business assets or personal assets as collateral lenders tend to impose stricter conditions on unsecured business loans. Interest rates are generally higher than those of secured products or invoice factoring due to the elevated risk. At the same time, the repayment period can be significantly shorter than for secured loans: you should expect to pay back the loan in 1-3 years. And the payments are often made on a daily, weekly, or monthly basis and withdrawn directly from your bank account. These terms can be disruptive to your business’s cash flow if you do not plan around them in advance but can be more than worthwhile in exchange for the advantages of unsecured loans so long as you do your homework beforehand.
Step Two: Assess Company Needs and Set Your Capital Goals
Small business loans can give you the firm financial footing you need to generate cash flow and grow your business. At the same time, they are a significant financial commitment that should not be taken lightly. This is true even of low-risk unsecured business loans. So, when you take out a loan it’s important to know exactly why you need the capital, how you are going to put it to use, and how you will pay it back.
Look at your current business expenses, goals, and strategies do determine why you need funding and how much you need. Do you need to acquire new business assets, hire new employees, establish working capital to give yourself financial security? Different goals can require different loans or loan amounts. Try to determine exactly how much capital you need, how quickly you will need the money, and how quickly you will be able to repay the loan.
This last point is especially important. It’s never a good idea to take out a loan without a plan to repay the loan. You should consider whether you have business assets that you can put up as collateral or whether you need an unsecured loan, whether your annual revenue is sufficient to afford the regular payments, and whether the increase in cash flow from leveraging the loan will exceed the interest that you will have to pay on the loan amount.
Step Three: Decide Whether an Unsecured Loan is the Right Choice for You
Once you understand your business needs, your capital goals, and the details of unsecured business loans it’s time to put everything together and decide whether or not an unsecured loan is the best choice for you.
The fact of the matter is that unsecured business loans can be enormously useful for growing businesses, but they aren’t for everyone. If you need a large amount of capital or do not want to have to entirely repay the loan in a few years, a long-term SBA loan could be a better choice. If you have business assets or personal assets that you can afford to offer as collateral, you might be able to get a better interest rate, larger loan amount, and repayment terms.
But if you do not have business assets for collateral or would rather save them for later loans, then unsecured business loans can get you the capital you need. They can also be a better type of loan to cover emergency business expenses or purchase inventory ahead of a high-volume season or at a higher volume to qualify for vendor discounts thanks to their much faster approval process. We’ll get into the details of qualifying for an unsecured business loan in Step 4, but it can be much faster and easier than long-term SBA loans, and other more traditional solutions. For instance, Strategic Capital approves applicants and provides the funds within as little as 24 hours!
If you don’t need to hold onto the money for an extended period, then shorter-term loans like unsecured business loans can be a cheaper alternative as well. While they might have a higher interest rate, repaying the loan in a shorter time frame can mean paying significantly less total interest. This makes them great options to jump-start revenue and cash flow for small businesses that do not want to take on long term financial obligations. Especially since young companies frequently have trouble getting approved for other types of loans. Given that a third of businesses fail because they run out of capital, unsecured business loans can make sure you retain your financial stability and grow your business even when traditional loans aren’t an option for your company.
Step Four: Obtain an Unsecured Business Loan with Good Credit and Annual Revenue
Once you’ve decided that unsecured business loans make sense for your business, it’s time to start applying. As we mentioned, the application process is a lot faster and less difficult than for other types of loans. Because you aren’t required to provide any collateral you don’t have to conduct a review of your assets or get your assets inspected by the lender as you do for a secured loan. You also won’t have to meet in person with the lender to present a business plan and turn in tax returns and in-depth financial statements to get approved.
That being said, you will have to provide some information to the lender to get approved for unsecured business loans. Since the lender is taking on more risk, they want to be sure that you are likely to pay back the loan. So you will probably have to give them the necessary information for them to run a credit check on the business and the business owners. Most lenders will also ask you to provide an estimate of your annual revenue as well as proof of revenue, such as your business’s bank statements. All of this documentation can be completed in minutes, compared to the days and weeks that secured loans generally take.
So that’s the information you need to apply for unsecured business loans from online lenders. But how can you be sure that you will get approved? The requirements will vary between lenders but you generally need good credit and a certain amount of annual revenue. At Strategic Capital, we work hard to make our unsecured business loans as accessible as possible: all you need is a credit score of 500 or more and at least $10000 in monthly revenue to qualify for our business cash advance product. With being named as the Best Alternative Business Loan Marketplace by the popular business funding website, LendVer, you can be assured that Strategic Capital will match your business with the perfect solution for your needs.
After taking a few minutes to put together this paperwork and waiting just a matter of hours for approval, you will receive the loan amount in as little as 24 hours. You can then leverage the capital to grow your business. Acquire important business assets, stock up on the inventory that will generate additional cash flow, and establish your working capital reservoir. With unsecured business loans, building financial stability for your small business is easier and more accessible than ever.
Checking for pre-approval will not affect your credit score.