If you have started a small business or are thinking about such a venture, you’re probably ready to face all the obstacles on the way to success. Something that will almost certainly pop up sooner or later is a lack of finances. You’ll likely need some extra money whether you want to start a company, work on a project, improve your operations, or cover unforeseen expenses.

These are some of the situations when you should think about borrowing money. Here we talk about dedicated loans for business owners, sole traders, or enthusiasts with a good startup plan. Lenders can have various lending terms for different borrowers and even certain restrictions regarding who they will lend money.

As for how much you can borrow, it’ll depend on many factors. If you need up to $100,000, lenders generally give these amounts without the need to pledge company assets, that is, collateral. As seen on forbrukslån.no/bedriftslån/, some lenders even authorize larger loans if your business has a good credit rating and a positive cash flow.

Business Loan Benefits

The biggest advantage of this financing method is that your business assets are safe. You borrow money without collateral, so you don’t endanger your property in any way. Simply, the lender has nothing to seize in case of repayment issues. Of course, that doesn’t mean you should be late with repayment or fail to meet lending terms.

Another advantage of unsecured business loans is that funds are available soon after approval. Since lenders don’t ask for any guarantee, they won’t conduct detailed checks and asset appraisals, so the whole process will take much less time. It means the world when you need money fast.

Other benefits related to business loans are repayment flexibility, affordable interest rates, and easy application. Depending on the lender and the amount you borrow, you’ll need basic documentation regarding your business, income, and expenses, and you can do everything online. And last but not least, timely repayments help your company’s credit rating.

Loan Eligibility

There’s a large offer of unsecured business loans on the market. When choosing the best deal, you shouldn’t rush but research all options and lenders. Keep in mind that applying for more loans doesn’t increase your chance of approval. On the contrary, if you apply to different lenders in a short time, that will be a hard inquiry to your credit score and can drop significantly.

That is why it’s of utmost importance to apply only for loans with a high chance of getting it. Lenders may have different criteria, and it’s important to know whether you meet them before asking to borrow money. These requirements mainly relate to your business and personal credit scores, how long your company has been on the market, and in which industry, so as how much income, expenses, and DTI you have. And in case you’re a startup, you’ll probably need a business plan.

In order to even consider your application, lenders need proof of your profits. That’s why they set minimum revenue and positive cash flow requirements to ensure you can pay back the borrowed money. For this purpose, lenders also check your DTI to see if and how much additional debt you can afford.

Credit Score Importance

Your personal and company’s credit scores must be good if you plan to borrow money at affordable interest rates. It means your personal score should be over 680, while the lower limit for your company’s rating is 50. Some lenders have even higher criteria, asking for a rating of 80 or more (business credit scores range from 0 to 100).

The niche in which you work can have a huge impact on loan approval. If you do business with an industry with a lower risk factor, you can borrow money even if your credit rating is somewhat lower. Likewise, if you work within a riskier niche, your chances for approval might be lower, even if your credit ability is good.

How to Choose a Lender

 

Considering that the demand for unsecured business loans is high, there are a large number of lenders on the market that offer these financial arrangements. Some are affordable, and others are more expensive, but some only seem too good to be true. These are usually arrangements like payday loans, with high interest and short tenures. They may seem like a good deal, but they can cost you a lot.

You should beware of such offers because they’re mostly scammers or overpriced deals with interest rates that can be several hundred percent annually. You can spot these suspicious offers because they usually promise guaranteed approval. They also promise fast cash without a credit check and unnecessary paperwork.

It’s good to know the current interest rates and market conditions to determine which loan offers are trustworthy. That way, you can distinguish reputable lending providers from potential scammers. Any interest rate not in line with the rest of the market is a red flag.

Before you look up the market, you can ask your bank or credit union for a loan. They might borrow you money under more favorable terms to award your loyalty. Still, if you want to shop around, always look for lenders who have been on the market for a long time, have a proven track record, and operate transparently.

Risks of Business Loans

 

Unsecured loans are a handy tool for overcoming financial issues in your business. Still, they’re not a way to stay solvent; just to quickly solve current problems. And as a quick fix, these solutions aren’t cheap, so you shouldn’t rely on them too often.

Interest on unsecured business loans is similar to the APR on personal loans. Since these arrangements don’t require collateral, lenders need something to protect themselves from potential losses due to loan default. And that is a high-interest rate. Plus, this rate can be even higher if you work in one of the risky industries or your business credit rating isn’t stellar.

Another tricky part of lending money can be eligibility requirements. Some companies might be quite strict about whom they give. So they might request borrowers to have an active business for more than two years and a high annual revenue. Also, some lenders can ask for your personal guarantee (assets) that the money will be returned. So in case of loan default, they can recover their losses from your personal assets.

 

Borrowing money to overcome business challenges is a handy but short-term solution. Unsecured loans can help you solve problems, but only if you understand all the pros and cons of these tools and act responsibly towards your obligations.