Business growth comes with a cost, but not all business owners have assets they can use as collateral. Unsecured business financing provides a useful alternative for entrepreneurs who need funds without putting up personal or business assets. Here, we’ll discuss how to get unsecured financing for your business and what you can do to increase the likelihood of your approval.
What Is Unsecured Business Funding?
Unsecured business funding is the term used to describe loans that are not secured by collateral. In secured loans, where the lender can repossess assets in the event of default, unsecured loans are given subject to the creditworthiness of the borrower, business operations, and history. Since there is more risk in the case of unsecured loans, such loans tend to carry marginally higher interest compared to secured loans.
Steps to Obtain Unsecured Business Funding
1. Evaluate Your Business Requirements
Before seeking an unsecured loan, establish the amount of money you need and how you intend to utilize it. Whether it is for working capital, inventory acquisition, growth, or advertisement, knowing your purpose will assist in obtaining the appropriate loan.
2. Review Your Credit Score
Because unsecured loans don’t use collateral, the lender must then depend highly on your credit score. Good credit scores enable you to obtain an approval easily and negotiate the terms of a better loan. Firms and companies with over 700 credits stand a higher probability of being issued unsecured finance.
3. Get Your Finances Prepared
The lenders will check how good your finances are before considering you for the loan. It’s essential you be prepared to have the below-stated records handy:
- Financial reports of business
- Profit/loss statements
- Tax returns (for the previous two to three years)
- Bank statements
- Business plan (if necessary)
4. Investigate Alternative Lenders
There are different financial institutions providing unsecured business finance, such as:
- Banks and NBFCs: Conventional financial institutions offer unsecured business loans with reasonable interest rates.
- Online Lenders: Fintech firms and peer-to-peer lending websites provide instant funding with less paperwork.
- Government Schemes: Different government-sponsored schemes offer unsecured loans to small businesses and startups.
- Credit Unions and Microfinance Institutions: These institutions lend to small business owners who are not eligible for traditional bank loans.
5. Enhance Your Business Financials
Lenders review your business revenue, profitability, and cash flow to establish repayment ability. Enhancing your financials by boosting revenue and having a good cash flow will enhance your eligibility.
6. Have a Solid Business Profile
A well-established business with a strong track record is more likely to secure funding. Building a solid reputation, maintaining good customer relationships, and demonstrating consistent growth can enhance your credibility.
7. Consider Alternative Funding Options
If traditional unsecured loans are not an option, explore alternative funding sources such as:
- Business Credit Cards: Short-term financing for small expenses.
- Revenue-Based Financing: Loans based on future revenue projections.
- Angel investors and venture capitalists: Those who invest money in the form of equity.
Conclusion
It is possible to get unsecured business loans with the proper strategy. Keeping a good credit history, having ready financial documents, and going through various financing options help you get a loan without security. In case you require support in arranging business funds, seeking advice from professionals such as NKB Kredit Solution Pvt. Ltd. can ease the process and make it easier for you to get the most appropriate financing solutions.