May 10, 2022

Businesses may encounter a need for financial help anytime. It is because urgency doesn’t knock on the doors. In this situation, the companies can make the right decision by seeking an unsecured loan. If you direly need funds and cannot wait any longer to go through a comprehensive loan approval process, these loans work best.

Unsecured business loans for new businesses eliminate every hassle of securing funds quickly.

What Do Unsecured Loans Imply? 

Unsecured loans are offerings that are not secured by any business asset, unlike secured loans. If you wish to meet an immediate requirement and do not have tangible assets to show up, these loans are the best for you. The loans have quick turnaround times.

In unsecured loans, lenders share a high risk of providing loans. It is because it is a security-free loan. If you want to get the loan, you must have an excellent credit rating and a promising business plan. To prevent a business from defaulting on the loan, lenders ask for a personal guarantee. It implies a business owner has to provide security as personal assets like- a home, car, or property.

What you basically need to Qualify for An Unsecured Business Loan?

Compared to secured business loans, unsecured loans share limited eligibility requirements. It dissolves any risks associated with losing assets to lenders. You can get the financial help almost immediately if you qualify the criteria mentioned below:

A registered business in the UK with 6 months of operation

The company should have a turnover of a minimum £5000

The applicant should have attained the maximum age of 18 years

Apart from that, a business loan lender, while providing unsecured business loans for new businesses, carefully analyse:

  • Bank statements
  • Profits and turnover
  • Filed accounts
  • Trading history
  • Payment history
  • Forecasts
  • Business plans
  • Customers base

These are important documents that a business should prepare before taking unsecured business loans. Different lenders have different requirements according to the loan affordability of businesses. Thus, interact with your lender regarding the loan terms and interest rates. Identify how you can reduce the interest rate and ensure a personalised repayment tenure.

How much can a business borrow on unsecured loans?

Each lender has its terms for lending money. Typically, an unsecured loan starts from £1000 to £25000. Some lenders may exceed the amount depending on the affordability, credit score and other potential business parameters.

There is no fixed amount you can borrow with unsecured loans, but you can borrow a reasonably large amount with secured loans. You can borrow an unsecured loan either by taking a business loan or a business line of credit.

Business loansA Business Line of Credit
Most business loans are used to fund massive business needsIn a business line of credit, one can borrow only a particular amount
Here the borrower pays interest on the complete loanIn this, a borrower pays the loan only on the amount one uses
Fixed payment scheduleIt is rigid and lacks a fixed repayment schedule
Higher APR and feesIt has comparatively low APR and fee
One can borrow a huge amountLimited credit limit
A business loan is used for a specific purpose like- equipment investment, hiring costs, etc.A business line of credit is ideal for any business expense, like a business trip

So, you can decide which offer to go for. Highlight the business requirement and analyse the funds you will need to fulfil the purpose. If you prefer a fixed monthly payment, then a business loan can be an ideal thing.

A fixed repayment schedule provides businesses with additional flexibility to prepare for the future. In opposed to this, if you want to cover urgent and unavoidable business expenses, a business line of credit can work for you. In this, you do not have to make any payment until you have the money.

How To Choose the Right Unsecured Business Loan for Your Needs?

Many business owners often get confused while choosing the right way to finance their needs. Business loans and business lines of credit are the two popular options for unsecured business loans for new businesses. But which one is the most suitable lending option for your business? How will you decide? The below findings will help you pick the right option:

  • Figure out the money requirement 

Figure out the money requirement. In a business credit line, you can borrow anywhere between £1000-£1million. If you wish to borrow more than that, a business loan would be an ideal option.

  • Purpose of the loan

A business loan will be ideal if you have a defined purpose in mind before qualifying for credit. As opposed to this, business credit lines are ideal for unexpected and unrestrictive usage for business purposes. Highlighting the purpose of the loan is ideal before seeking options. It helps one ensure clarity and borrow right.

  • Fixed or variable repayment schedule

Business owners have multiple deadlines to meet. In such a scenario, ensuring repayment predictability might prove a sound option. You can opt for a business loan if you wish to avoid any surprises. It provides you with a fixed monthly repayment term.

In this, you always know the monthly repayments. Hence, you can save in advance. As opposed to this, business lines of credit have variable interest rates. These rates could vary according to your loan repayment behaviour. If you miss multiple payments, the interest rates can increase.

  • Analyse the credit score 

If you wish to borrow a fairly large amount for your needs, it is critical to ensure a reliable and appreciative credit score. To get unsecured business loans for new businesses, a company needs to qualify a set loan eligibility criterion. Lenders consider credit score as the primary criteria for providing unsecured business loans.

If you have a credible credit score but are unable to pledge any asset as the loan collateral, then an unsecured business loan is a perfect fit. It is also best when you do not need an extensive amount. Paying off the loan early can help businesses improve their credit score, and improved credit helps with future borrowings.

Thus, decide on the proper mode of business loans, and this will decide how much you can borrow in unsecured loans for businesses. Taking unsecured business loans at the right moment can help your business scale up high. Identify different measures and lenders’ guidelines before applying.

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