Unsecured Loans Are A Great Solution For Start-ups!

If you’ve decided to start a business then you’ve come to the right place. There are just too many things you need to apply into a startup and the biggest being: funds. At some point you will understand that the startup will need more funds than you currently have and that’s when you’ll have to look into getting a loan. Don’t worry, this post will guide you through whatever help you’ll need with getting unsecured loans for your start up.

Why opt for unsecured loans at all?

There are so many kinds of loans to choose from that it almost becomes overwhelming to decide which would be perfect decision for a startup. Usually people are stuck deciding between going for a secured and unsecured loans and usually unsecured loans always wins. But why go for this loan at all, after all, you get less interest applied to secured loans as compared to the latter.

The biggest advantage you get through unsecured loans is the lack of collaterals. Business startups are already a risk and to top it off by placing a collateral is a mistake you simply cant make. Businesses are unpredictable and startups are even more which means, you never know when recession might strike and you’re left with nothing at all. With collateral in the way, you get to lose the property as well so it’s better to spend a little bit extra on interest and be on the safe side than lose everything and have nothing by your side at all.

Another reason why people opt for unsecured funding is because it often requires the most minimal documentations. You don’t really have to show any papers describing the nature or purpose of loan which can be quite a hassle to deal with especially during a startup. Unsecured borrowing is the easier, trouble-free method to fund your business. However, it’s important to understand that even unsecured loans have several types and not all would be good for your business. You should be well aware of what you’re going for before you apply or else getting a loan would be a little more challenging for you.  Here are some more ways you can benefit from business loans which are unsecured:

Business credit will be a big yes!

Here’s the thing, just like your credit scores, you also have to make sure your business credit profile is up to the mark. Getting an unsecured loan for your business startup means you’ll be improving your business profile quite a lot. This building of profile will eventually clear your way for good measure and a healthy business growth.

No collateral, no problem

As discussed earlier, collaterals are a major problem with secured loans but using an unsecured business loan, you can make sure both your business and property are in excellent, safe hands.

Time is really not an issue

With unsecured business loans, you don’t get to face the trouble with long processes and too much time being taken to get the money. If you apply to online lenders, you’ll usually get approved very quickly and then avail quick benefits as well.

Unsecured loans are great options whether or not you are going for a small business loan for your start up or a loan for yourself. They are hassle free and help you address any financial concerns you might have but it’s important to know your credit score is up to the mark before you can apply. After all, your lenders need to be sure they will be repaid by you in a good and timely fashion.

Unsecured business loans: Which one would be best for you?

First loans are divided into its major constituents and then each will be subcategorised into different parts. While they all might basically look like the same thing, there is a great big difference between them. But before you look into that, you need to first know how you can decide which loan you can opt for:

1. Why do you need the loan? The first thing you should be clear about is why you need the unsecured loan? While funding your business is a legitimate reason, it’s really not reason enough to apply. What you need to know is why your business needs funding? Either it’s because you are running low on fund or that you need to buy certain assets. Either way, your unsecured loans could greatly be affected if you’re going for sudden, small expenses or large ones.
2. How much do you have? What loan you choose will also depend on the funds you already have and how well you’ll be able to pay them back. Your cash flow will also affect the type of loan you’ll be getting because in the end, if you’re not able to repay the lenders, you’ll be facing a lot more trouble than what you initially began with. Remember, you can’t let anything affect your credit score especially if you’re starting your own business.
3. What’s your credit score? What your credit score is will be the defining factor of your loans. It will also decide whether or not you’re applicable for an unsecured loan since these often require your score to be in the good side. How good it is will in turn decide which type of loan you should get. Every lender will have their own requirement so it’s best if you get several quotes and compare the best offer beforehand. Remember, the better your score is, the more advantages you’ll be able to avail.
4. Type of business: Every business is different and will need different types of loans. It’s your job to understand what your start up is about, analyze all its nicks and flaws and find what type of loan would be best suited for it. It’s always a better decision to get a professional to help you decide the kind of loan which would be best suited for you because, after all, you can never truly understand your business regardless of it being your business.

Once you’ve got all that covered, it’s time to move ahead and figure out which loan would perfectly suit your purpose. Amongst the many types available to you, you can pick:

Peer-to-peer loans

Most people tend to avoid this type of loans because it requires both the borrower as well as the lender to rely on each other for the loan rather than a proper organization. This, in itself, greatly increases the chances of risk involved as compared to other types of loans. Most people confuse this with doorstep loans, which is also a kind of unsecured loans. In the case of doorstep loans, you get to apply to an organization and the lenders will send an agent to your home. This is not necessarily the best option for a loan in case of business startups but you can still look into it.

Signature loans

These are built on trust. You make a contract with the lender and your signature on the contract will ensure that you will return the amount you borrowed. This, again, poses a great risk since signatures can easily be forged and you can find yourself facing a lot of trouble with your start up. However, you get to avail low interest rates and with the plus point of it being an instalment, it can help you decrease the burden by making certain payments on a monthly or weekly basis, as per the lenders requirements.

Cash advance loans

These aren’t really the best options but they can still help you immensely with your trouble of funding a startup. This is a short term loan and is taken by your credit card via cash. The borrower benefits from comparatively low interest rates applied to it and but you’ll have to pay it back as soon as possible. These loans are often taken against your credit card but of course, there’s always a limitation to it. You can consult the credit card company and ask for the details to help guide you with the process. While it may be an easy process, it’s also known to be quite costly so there’s really no benefit waiting for you here.

Business loans with personal guarantee

This type of loan is often recommended and it involves getting unsecured loans with a guarantee being placed on either the individual or the business. Usually, placing the responsibility on the business is riskier but this time of loan requires you to do so. Putting the responsibility on the business means it will be paying back the lender but if it fails, you’ll have figure out your repayments.

Term loans

Term loans are the best types of unsecured loans you can get because this is often an agreed amount as discussed by both the lender and the borrower. Being an already agreed amount, you doing have to trouble yourself with variable interest rates and repayment plans. It’s all discussed and fixed by both the borrower as well as the lender. There’s really no room for surprises when you opt for term loans which is something that most start up borrowers look for.

Once you’ve decided on which loan would be best for you, you need to move on to the real questions. You can’t just make a decision and suddenly search for lenders to apply to, you need to know when would be the right time to apply for an unsecured loan for your small business.

Applying for a loan-when’s the right time?

Usually people don’t pay much attention to the factor of time, however, it’s crucial that you apply when you’re well researched and prepared to get a loan. Business loans for your start up is more than just about getting the funds but also about how well you’ll be able to manage it. Remember, you need to apply so that you can be approved and here are a few tips to help you with that:

You can’t ignore your credit score

The biggest factor you need to look at before applying is how good your credit score is. While most people might be under the impression that it really doesn’t count for much, you can’t go for their words. Without credit scores may not even be approved for loans especially since you’re opting for an unsecured loan. Because they don’t offer collaterals, the lenders often need your credit score to be up to the mark so they know you are a reliable candidate.

How is your business going?

Since it’s a start up, you may believe that your business position isn’t really of importance right now but you are wrong. Where your business stands plays a major part in giving the lenders an idea of how their funds will be used. After all, you wouldn’t want to lend someone money only to find out they’re just wasting it all, would you? In much the similar manner, lenders need to be sure your business is on the right track or has the potential for growth. This would often mean you need a proper business plan laid out beforehand so you can show it to the lenders.

Will you be able to repay them?

Another major point you need to look at is whether or not you are in the position that you’ll be able to repay your lenders. It’s important that you make a proper repayment plan and keep it ready and also apply when you have a proper cash flow and you are certain you won’t be drowning in debt later on.

These points are very crucial to keep in mind so you can’t really avoid any of them. Business startups are always a risk which is why secured loans are the better option but it’s always best if you consult a professional and be certain before taking any step.