Small business loan unsecured – just when you need it most
For a business to survive, it must have a steady cash flow. Without a constant flow of cash, you will find it almost impossible to pay your bills on time. A thriving business must maintain its working capital at an optimum level. Working capital refers to the difference between current assets and current liabilities. The former consists of items held in cash form or you can quickly transform into cash. Examples include money in the bank, inventory, petty cash and cash that customers owe for items supplied or services rendered. As for the latter, these are obligations that a business owes. Payment owed to suppliers and an overdraft from the bank are two examples.
The influence of working capital
Your working capital (the difference between current assets and current liabilities) must be positive. Poor management of cash flow often means that the business does not have money to meet its daily running costs. With a negative working capital, you are at the mercy of your creditors and your banking partners. None of those ‘friends’ can stay philanthropic when you begin to show signs of financial weakness. You are at high risk of jeopardizing future chances of getting easy business loans or other financial assistance. Therefore, you must guard your working capital zealously while also have robust systems to control and monitor your cash flow.
Take advantage of credit without fear
Unless you offer goods or services on a strict cash policy, you need credit facilities to sustain and grow the business. While at it, the working capital bridges the gap between the time when you sell to a client and when they pay you in full. Without this achievement, you may end up over-trading which is not only illegal but a sure path to failure. Many small businesses keep going under because their owners attempt an expansion that is inversely proportional to their working capital level. Before you realize it, the company runs out of money, and you have no choice but to close shop.
Maintaining growth in business means that you keep a close watch
Traditionally, banks have continued to lend companies money but with one condition; they must provide collateral. Once you give some form of security usually equipment, real estate or other assets of considerable value, the bank can then ascertain an amount. Loan officers compare the cost of collateral provided with the loan sought. In other words, what the lender tries to do is to ensure that your borrowing has backing in the form of another possession. Your bank can agree to lend you money that is equivalent to 70 percent of the value of your guarantee. If your property has a value of, say $1000,000 million against a loan request of $500,000 the bank may find it favorable.
Unsecured loans as an option, the only one
However, some businesses do not always meet the tight requirements set by banks. Under such circumstances, unsecured loans are the only available option. The term unsecured loan does not require much explaining. It is a loan granted without collateral. With such credit, you can use the money to cater for operational costs, purchase inventory or spruce up your business by acquiring more assets. Fast, small business loans have a shorter application and approval timelines than conventional loans from banks and other institutional lenders. After a simple application process, you can tell within a few minutes whether the lender has approved your request. Upon approval, the money goes into your account in as quickly as a day or two.
Unlike traditional loans, unsecured business loans do not rely on the availability of collateral. However, lenders are keen to examine several factors such as:
- Availability of a business plan: Lenders consider entrepreneurs who prepare business plans as more organized than those without one. Planning your business shows that you are not a haphazard person and can commit to achieving goals.
- The cash flow position: As mentioned earlier, your business must have a consistent and reliable cash position. Loan companies compare what you owe with the revenue generate to ascertain that you can meet the added obligation.
- Your credit profile as well as that of the business: Owing to the level of risk involved, lenders must request for your credit report from the three agencies, i.e., Experian, TransUnion, and Equifax. They then review your payment history. Of specific interest is whether you have been prompt or not. Ensure that you have put your credit status in order before you embark on your quest to obtain unsecured business loans.
- Overall business performance: Having your financial statements ready will give you an edge during and after your loan application process. Make sure you have an income statement and balance sheet prepared for scrutiny. If not, hire a financial expert to prepare them for you. In most cases, lenders request that you present audited financial reports. However, as a small business owner, audit services can be costly. You could have a Certified Public Accountant (CPA) review your financial statements at a reasonable fee.
If you have a history of paying your creditors on time, the lender treats this as a strong indication that you are creditworthy. Obtaining an unsecured small business loan does not exempt you from paying interest and incurring penalties. To mitigate against paying costly charges, always negotiate for credit at a fixed rate of interest.
Cash flow is the life of every business. Without money to keep the operations afloat, you could soon be staring at closure. Often, you require an injection of cash to grow your firm or finance an activity. Going by the restrictions imposed by traditional lenders, you may fail to qualify for a bank loan. Banks usually ask that you furnish them with collateral, and you may not have it.
To salvage the situation, unsecured lenders exist. They do not request for any security and do offer reasonable business loan rates. However, they usually review your enterprise and check its past and present performance. Their objective is to ascertain your ability to pay back the loan advanced. As a way of preparedness, ensure you have a business plan and that you have ironed out any issues in your credit report. Also, prepare accurate financial statements thoroughly reviewed by a CPA.