Aside from sweat and blood, running and growing a business requires a large sum of money to speed things up. Business loans provide a company with the financing it needs to run its business activities efficiently. Obtaining the wrong loan would jeopardise the company’s position and may lead to substantial, unbearable debt.
Unsecured business loans or no security business loans are amongst the many types of business loans available in the market today. Unlike the ordinary secured business loans, unsecured business loans do not need any collateral from your company. How much financial support the company can get from this type of business loans depends on its profit or creditworthiness. This article walks you through the three essential tips you need to know to maximise on unsecured business loans.
Tip #1: Understand the various types of unsecured business loans
All kinds of loans, including unsecured business loans, come in many sizes and types. Each has distinct interest rates, repayment conditions and formats. Entrepreneurs should have a clear idea of the exact form of loan they need to operate their business.
The common types of unsecured business loans include:
- Business credit card: This type of loan primarily uses the credit card concept where business owners need to repay according to the amount they use in the previous month. It is a reliable option for companies with minimal expenses.
- Merchant cash advance: In this loan, the lender will take a percentage or a set amount of the companies’ daily income until the loan is fully repaid. While the active APR for this type of loan can be quite high, it can be beneficial for high-volume businesses with multiple credit card transactions.
- A business line of credit: This unsecured loan type utilizes pretty much the same concept as that of the credit card; loaners only need to repay the amount they draw from the credit line.
- Traditional loans: This loan type uses a similar concept to that of the conventional loan, where the company owners borrow a set amount of money and agree to pay it back with interest on a particular time.
Tip #2: Calculate your interest rate
Due to the nature of no security business loans (where a lender lend money based only on the loaners’ promise of repayment), there is a high probability that the lenders may charge the business owners with a higher interest compared to the collateralized loan. Thus, business owners need to compute their interest rate beforehand to get a clear idea of how much this interest may cost them down the line. With this in mind, they may want to consider opting for the loan if their purchases are relatively small since the interest rate will likely be less painful to pay on a lower purchase.
Tip #3: Enhance your personal and business credit scores
Each apparent drawback of an unsecured business loan can be slightly reduced by having a better credit score. Lending money to a company is generally an investment on the part of the lender. Hence, the business owners personal and business credit score is a significant piece of data which shows the lenders their possibility of getting a positive return on investment.
Moreover, a higher credit score often translates to lower interest rates, better repayment conditions, as well as more money. So business owners should try to increase their credit score; pay their bills on time and avoid opening multiple lines of credit cards.
Knowing how to maximise on your unsecured business loans helps your business get more fundings with better repayment terms than traditional loans. While there are several options when it comes to business lending, the unsecured product can be the best choice for savvy company owners who know how to transform the lender’s investment into a profitable business outcome