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How to Get an Unsecured Business Loan

Getting unsecured business loans is much harder than traditional business loans because it all depends on the merits of your business. The lender is assuming you are going to hold up your end of the bargain. If you don’t, it leaves them thousands of dollars in the hole. This guide will show you how you can go about getting unsecured business loans.

What is an Unsecured Business Loan?

It’s important to understand exactly how unsecured business loans work first. The principle is simple. You take out a certain amount of money, agree on the monthly repayments, and then you pay the money back in a specific period of time. The difference is the money isn’t secured against anything. If you enter bankruptcy, the company is liable for the money, but you personally aren’t. This means that if you work out of a home office, for example, the lender can’t take you to court and have your house repossessed. They also can’t seek repayment from the managing director’s personal assets.

Finding a Lender for Unsecured Business Loan

Your first order of business is to find a lender who will willingly lend you the money. You may decide to approach a bank. You also may decide to approach the government, if they happen to have any local programs for businesses. On the other hand, you may opt to go the private route. This is where a private investor supplies the money and you organize a deal with them. This may come in the form of an individual or a private company. When it comes to finding a lender, it’s a matter of doing your research and shopping around. See what rates you can get and how much of your loan you can secure.

The Key to Securing an Unsecured Business Loan

In order to increase your chances of securing one of these loans, you have to understand how lenders work. First of all, they are naturally more cautious because they are taking a bigger risk. You need to ease their concerns through providing a solid business plan.

This business plan should be concrete and realistic. Experienced lenders will see through inflated figures and any extra optimism. Make sure you are a realistic. If securing the loan seems like a long shot, it may be worth reducing the amount you are asking for. Remember, the name of the game is to reassure the lender that there’s not as much risk involved.

What is a Business Credit Score?

Never confuse your personal credit score with a business credit score. If your business is already established, the latter is the score that counts. This shows how trustworthy you are and many lenders won’t even speak to you until you have a high enough score. You can easily build up your business credit score through obtaining a business credit card and using it. Pay your bills on-time and you’ll steadily build your credit worthiness.

Ultimately, your ability to get an unsecured business loan is often down to the lender. You can have everything in a row and a lender still won’t give you a loan for some imaginary reason. But don’t lose hope because there are plenty of lenders around willing to lend you money.

Banks are particularly cautious these days, so you may have less success with them. The financial crash left massive shockwaves deep around the entire lending industry. If you are having trouble getting the loan you want, consider tweaking the loan. Offer to pay higher interest rates or reduce the amount you are asking for. Sometimes you have to negotiate in order to snag the deal.

Joseph Hogue, CFAAbout Joseph Hogue

An investment analyst by profession, I run two blogs (Crowd101 and PeerFinance101) in personal finance, peer lending and crowdfunding. I've been on both sides of the table as a lender and a borrower and am excited to be a part of the peer movement. With the power of the internet, people are helping other people manage debt and raise money in ways never before possible.

A veteran and Iowa-native, I now live in Colombia with my wife and son. Like so many people, I was once trapped into the money myth and what it means to be successful. After taking control of my finances and learning how to make money in a job I love, I found a level of financial freedom that just has to be shared.

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