Unsecured Small Business Loans

By: EconomyWatch Content   Date: 11 December 2009

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Unsecured small business loans are used to inject cash into businesses to help them grow and expand. Such loans, as the name suggests, do not require any collateral or personal asset if you are operating as a sole trader. These loans are usually short term and provided by most banks and lending institutions. An unsecured business loan can be used for various purposes such as:

 

·        Paying employees’ wages

·        Purchasing office premises

·        Purchasing tools and machinery

·        Renovating office space

·        Purchasing assets

·        Mergers and Acquisitions

·        Purchasing stocks

·        Business expansion

 

Typically, these loan amounts are small (up to $25,000). Because the loans require no security and are often given to people with low business credit, banks are very cautious in disbursing these loans. Thus the interest rates tend to be on the higher side. Unsecured business loans for companies with at least two years of existence and a credit score of 680 or more, are easier to obtain. As with most loans, there are many competitive lenders online, and the reliable ones can be sourced with some judicious searching.

 

Unsecured Small Business Loans: How to Obtain One

Before you start applying, ask lenders in and around your locality what they believe is the easiest method to obtain an unsecured business loan. Visit different banks; check out their approval procedures and interest rates.

 

·        Know your credit scores from various ratings agencies. Your credit score is a very important component in securing a loan. Many financial institutions use this score as a benchmark to gauge your ability to pay back the amount. Pull your credit report, check for errors and get them rectified before applying for a loan.

 

·        If your business isn’t making the projected profits, or has a large debt, chances are the bank will deny you an unsecured loan.

 

·        Make sure you have all the necessary documentation, such as tax documents, profit and loss sheets, balance sheets, and bank statements in place.

 

·        Look closely at loan terms and read the fine print. Pay attention to the interest rate, repayment terms and pay back period. Some credit lines require you to pay back the entire balance within a year. Also, search for unsecured loans that have a good fixed interest rate or are locked to the prime rate.


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