Businesses face challenges. There are times when they struggle with cash flow problems. There could be endless reasons for a poor cash flow, such as sales have dropped, there has been an economic crisis, or an advancement in technology has led to a decline in the demand for your existing products.
However, sometimes there are positive reasons why you might need to borrow money, for example, you want to expand your business by introducing a new product line, or you want to open a new branch.
It is a wise choice to borrow money when you want to spread the cost. Dipping into earmarked cash will strip off money that you might need for day-to-day operations and other contingencies. Small business loans can come in handy to meet your business expenses.
There are various unsecured loan options. This blog discusses them in detail, along with their pros and cons, but before that, you need to understand what you need to secure unsecured business loans.
Understanding what you need to qualify for unsecured business loans
Unsecured business loans require no collateral, and therefore, lenders rely on the following factors to decide approval:
- Your personal and business credit scores should be excellent. A business credit score is needed when it has a separate legal entity from you. Businesses with slightly low credit scores are also welcome, but they end up with high interest rates.
- You should be able to demonstrate a consistent flow of ash. This ensures that you will not struggle with payments.
- If you are a start-up or you want money to introduce a new product line or enter a new market, you will need a business plan to prove that it is profitable. Since there is no guarantee that your business will be able to cut it, you should also have an alternative repayment plan.
Unsecured business loans are subject to risks. In case of default, lenders cannot turn to your personal assets. Therefore, they charge high interest rates. Yet, they are a vital tool for businesses when they need a quick injection of cash.
Unsecured loan options for small businesses
Here are the unsecured business loans that you might need for small businesses:
- Business credit cards
Business credit cards are the most convenient way of financing business needs. They are revolving credit, which means you can withdraw funds as and when you need up to the limit they have. They are ideal for everyday expenses, inventory purchases and unexpected costs.
Things to keep in mind:
- It is worth noting that you should not utilise more than 30% of the limit at a time.
- Pay off the balance in full when the bill is generated.
- In order to apply for a business credit card, you must have a good credit score.
- Over time when your business shows consistency in profitability and payments, you can be eligible for a 0% business credit card.
The upsides and downsides of business credit cards
| Pros | Cons |
| They are easily approved if your business credit score is excellent. | It can affect your credit rating if you do not settle your business credit card debt. |
| It helps separate personal and business expenses. | They do not offer as many protections as personal credit cards. |
| It helps establish a business credit score. | They charge high interest rates. |
| It helps manage cash flow. | They come with monthly fees. |
| It helps earn rewards. |
- Unsecured business loans
Business credit cards do not offer a very high limit, and hence, they cannot be useful for large expenses. Here comes the role of unsecured business loans. You can borrow a large sum of money to be paid down over an extended period of time.
Here are the advantages and disadvantages:
| Advantages | Disadvantages |
| These loans include predictable repayments, which help you manage your budget around them. | They charge higher interest rates than secured loans. |
| This allows you to borrow a large sum of money to purchase space equipment, for example. | A personal guarantee gives lenders the right to repossess your personal assets to get their money back in case of default. |
| They help with building a credit score. | The repayment term might be short, which will add pressure to your budget. |
| Subprime borrowers are also eligible if they give a personal guarantee. | Not all lenders will be comfortable lending you a large sum of money because of a lack of collateral. |
- A business line of credit
A business line of credit is similar to a credit card. This is suitable for larger funding. You will be obligated to pay interest only on the used amount. Unlike a business credit card, you do not have to pay off the withdrawn funds in full. You can pay down as and when you want. The good thing is that you will be able to withdraw funds as soon as you pay them back.
Here are the pros and cons of a business line of credit:
| Advantages | Disadvantages |
| This comes with larger funding as compared to business credit cards. | Interest rates are high. Additional fees are also charged. |
| You can use funds again and again, and interest will be paid only on the withdrawn amount. | The risk of overspending is quite high with a business line of credit. |
| You will get instant access to cash. | Subprime borrowers might struggle with getting this qualified. |
- Microloans
Some specialised lenders offer microloans to startup companies to meet their day-to-day expenses.
You are eligible for these loans despite limited credit histories. However, you might not be able to cover large expenses with them.
The bottom line
There are various types of unsecured business loans. If you are struggling to choose between the right option, you can consider a business loan without collateral from a loan broker in Ireland. They will help you choose the right loan and lender that fulfils your needs.
Make sure that you choose a reputable loan broker like GiveMyLoan. They charge no fees from borrowers and will help you choose the best deals.
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