What do you usually do to counter urgent business cash needs? Tap your cash reserve, profits, or your investments. However, doing so every time may affect your assets and the business’s total worth. So, how can you meet your needs without tapping such aspects? Verified unsecured business loans may help there. It does not require you to pledge assets to get a loan.
Instead, you may qualify by meeting the basic affordability criteria. It may differ according to the loan provider and their terms. The blog is a detailed guide about unsecured business loans. Any startup seeking out for the first time may benefit.
What do you mean by an unsecured business loan?
An unsecured business loan is a financial facility for startups and enterprises that does not require a business to provide collateral. Instead, you may qualify by undergoing the basic affordability assessment.
They analyse your bank statements, business plan, profit statements, tax statements, etc. It helps them know the amount you can qualify for, given the current financial circumstances. You may get it for any business need, like releasing payrolls or meeting working capital needs.
The interest rates remain competitive, and the payout is lower than that of secured loans. It is because the loan provider wishes to eliminate the risk if the borrower defaults. You may get £20,000-£250,000 to UK-registered limited companies and LLPs.
Why unsecured business loans are ideal for new companies?
Most startups start at an early age and are started by young entrepreneurs. They lack decent assets, credit scores, or capital to fund their needs. You may get a high amount if you can provide a personal guarantee. Alternatively, it helps you solve critical business requirements without panic.
What are the eligibility criteria for unsecured business loans?
To qualify for business loans, the company needs to demonstrate strong credit scores, consistent business operations, and revenue generation. Moreover, some loan providers check personal credit history, too; therefore, ensuring good personal and business credit scores is a must. Here are the detailed eligibility criteria for unsecured business loans in the UK. Check whether you may qualify for unsecured business loans:
1) Basic Credit score requirements
Generally, there are no fixed credit score criteria for getting a business loan. However, businesses with a credit score of 690 or more may qualify. The exact requirements may vary from lender to lender. If a business is relatively new, it must also provide a personal credit score. The loan provider analyses both business and personal credit scores to determine eligibility.
2) Age of your business
According to Money.co.uk, “You must have at least 36 months of operating history to qualify for unsecured business loans.” There should be no gap years within this operation period. Alternatively, some loan providers demand you to have 24 months or 2 years of consistent operating history.
3) Meet annual turnover requirements
Any startup or new business must have a minimum turnover of at least £10000-£12000/year to qualify. The specific revenue requirements may differ according to the loan provider. Here, the relevant broker may help sort out the confusion by finding the right direct lender for you. He analyses your turnover and partners you with the lender that deals with profiles like that. It saves you time and helps you get the right amount of funds.
4) Personal Debt-to-credit ratio
The personal debt-to-credit or Debt-to-income ratio represents the percentage of income that you spend on debt clearance. It is basically the ratio of debts against your income. Loan providers may consider both personal and business accounts. Thus, apart from optimising the business finances, check the personal ones too.
Make sure you don’t have many bad debts like- credit cards, payday loans, or overdrafts. Apart from that, it ensures enough flexibility between debt management and earnings. Do not seek credit cards for personal and business purposes unnecessarily. You should generally have a 30-40% Debt-to-credit ratio to qualify for an unsecured business loan.
According to British Business Bank, “ a good debt-to-income ratio for a business should be 1-1.5%.” It is different than debt-to-equity ratio.” It is based on a business’s growth and industry.
5) Personal guarantee (if asked)
A personal guarantee is an agreement between the borrower and the loan provider. It lists that the creditor shares the complete freedom to seize personal assets (property, car, investments) if the business fails to pay the dues. The lender may tap one of the business assets that are not sufficient to pay the dues.
It could be in the form of a personal asset or a person. Businesses with bad credit history, low operating years, or poor financial management may need to provide one. However, one should never produce one unless asked. Thus, if you have a poor credit rating or revenue, you must prepare.
What are the different types of unsecured business finance?
Although you don’t need to pledge the assets to get unsecured loans, choosing the right one is important. Here are the types of unsecured business loans to consider. Identify the loan purpose, eligibility, and amount you need to get a business loan in the UK marketplace. Compare your options to fetch the most affordable interest and terms.
1. Business loans for Dental practice
It is ideal for dentists seeking to renovate the office, buy new equipment, and hire. Dental equipment costs. For example- finding the perfect chair may cost -£2500-£25,700 on average. You may not have that many funds ready. Here, business loans for dental practice may help. It may help you fund your needs without saving for it.
2. Loans for improving capital & growth
You cannot progress as a startup unless you ensure consistent growth. It requires you to analyse your competitors and customers requirements and launch targeted campaigns. Analyse and invest in the right number of employees. It may mean partnering with the right suppliers.
You must provide advance immediately if the supplier agrees at your rate. Here, growth capital loans may help you. You can use it to expand operations, invest in new product development, or hire. Contact business loan brokers to get the right quote now.
3. Working Capital loans
As visible from the name, these loans are ideal to meet your working capital needs. It could be improving the infrastructure, filing taxes, and launching training for interns. It eases up the burden on your cash reserve and helps meet requirements. Moreover, you can repay working capital loans in favourable instalments. If you are struggling, contact the right brokers to get an instant solution to it.
How to apply for unsecured business loans online?
The process may vary according to the loan providers. However, the basic one stays the same. Here is the basic process of how unsecured business loans work:
- Step 1- Make an online application
Fill out the form online by providing basic details like name, amount, repayment term, business type, and business name. Recheck the details before clicking “APPLY”.
- Step 2- get a basic quote
The loan provider will check the details and provide a basic quote. He may ask for some documents to be provided by mail. You can either proceed or ignore it.
- Step 3- provide required documents
Provide proof of business registration, business plan, bank statements, and tax statements (if asked). Afterward, he conducts a soft credit check to determine your affordability. It does not affect credit score.
- Step 4- Undergo a detailed credit check
Once you provide the proof and agree to go with the quote, the loan provider conducts a hard credit check. It affects your credit score temporarily. It helps him analyse financial management. Details like- current debt, credit utility, and revenue help decide how much to lend.
- Step 5- Get the loan agreement
The lender provides the final agreement by stating the terms and the repayment dates. You can re-choose one if you want to.
- Step 6- Repay the dues
After loan approval, you must maintain regular payments according to the agreement. Missing one may lead to penalties and high-interest costs.
Bottom line
Thus, unsecured business loans are a financial facility that does not require you to provide collateral. It is ideal for businesses lacking sufficient assets. You may qualify with a fair credit history, detailed business plan, long operating history, and good revenue figures. Compare your business loan options before applying. It will help you choose the affordable one.
Harry Kane is a financial writer and author who has covered wide topics related to business loans and finance for the last decade. He has been working as the Chief Contributor in finding out deals on various business finance products covered by Thebusinessfunds, a reputed business loan broker firm in the UK. The primary work of Harry is to analyse the loan requirements of various businesses according to their circumstances and affordability. He directly communicates with the loan aspirants and guides them to get the right loan matching their needs. He has a vast experience in finance writing, working with many major business firms in the UK. At Thebusinessfunds, Harry also used to write well-researched blogs covering the financial problems of business loan aspirants and providing relevant solutions. He is a postgraduate with MSc. in Banking and Finance.
