When Should You Apply For Unsecured Business Loans?

Getting financial support for your business can be challenging and daunting, especially since there are so many possible financing options for you to take.

Applying for loans, for instance, can come with lots of technical steps. This is why it is always best to familiarize yourself with your options.

You have two primary options if you are looking for a business loan: unsecured or secured. The most significant difference between the two is that secured business loans require you to pledge a form of security or collateral, while unsecured business loans do not.

However, you also have to consider things like your business size and needs since both types of loans are more suitable for specific cases.

Aside from having less risk, unsecured loans also come with other benefits for you. With that said you still have to familiarize yourself with different types of loans to see what loan best fits your business based on its situation and needs.

To assess if an unsecured loan is the best choice for you, you can consider several factors.

Strong Financial Standing

Since unsecured business loans do not come with any security, lenders will look at your company and its financial standing to assess your application.

If you have a good track record of sales, positive cash flow, and consistent growth in your business, then unsecured loans are an excellent choice. Your business’s financial history will be crucial since this will be the only way your lender can gauge your ability to repay your debt with interest.

Part of your financial standing includes your credit score. This will play a massive role in your application grant, the amount you can loan, the interest, and other things. If you are unable to fulfill your end of the agreement, your lender may report this to the credit bureau, resulting in a lower credit score.

A lower score may affect your ability to take out loans in the future, so unsecured loans will be a good choice if you know you can repay your debts.

Solid Business Plan

If you are a startup planning to scale, you may also be looking for unsecured financing to grow your company further. However, it will be more challenging to apply for a loan since you may not have a solid record to prove your company’s financial potential.

With that said, having a solid business plan may help you with your application. Make sure your proposal includes everything from the basics to financial analysis, risk assessment, economics, and other crucial details that will help you prove the potential of your business.

Risk and Reward

As with any other kinds of loan, there are also risks that come with unsecured loans. Before getting an unsecured loan, think about where you will be using the funding. Typically, loan structures require you to pay back the amount in installments throughout a specific period.

Thus, you should consider getting an unsecured business loan only if you think that your net profits will outnumber the cost of your debts. Otherwise, you end up adding more expenses to your company’s books.

Immediate Need

Unsecured business loans get approved much faster since the evaluation of collateral can take up much time. Secured financing can take as long as months, so it will be ideal to apply for an unsecured loan if you need the funds immediately.

This factor, however, should not be your sole consideration since you also have to think about the implications of the loan to your business.