Unsecured Business Loans

 

In this discussion we are going to focus on the acquisition of unsecured business loans. In many instances, especially in today's credit climate, the acquisition of unsecured business loans is extremely difficult type of financing to obtain. This is primarily due to the fact that banks want to have their lines of credit, business loans, and other forms of financing for entrepreneurs fully collateralized or collateralized to an outstanding extent so that in the event that business does not as planned then they will be able to recoup their investment through the liquidation of business assets. As such, this article is to focus on having you can obtain unsecured business loans as well as focusing on which businesses are most suitable for the acquisition of this type of credit facility.

 

In these cases, as relates to unsecured business loans, you can expect that the most qualified businesses that would qualify for this type of financing typically consist of companies that operate in a professional service capacity. These businesses include medical practices, law practices, accounting practices, as well as other professional service businesses of which the individual entrepreneur is actually a licensed professional that is rendering a specific service to the general public. One of the reasons why unsecured business loans are primarily granted towards professional practices is that in the event of a business default, despite the fact that many practices do not have a tremendous amount of tangible assets, the individual practitioner will be able to secure a very high paying job that will allow them to continue to make the appropriate interest and principal repayments for the life of the loan. Much of our previous discussions pertaining to business loans, even in the event of default, and even if your business is a SBA guaranteed loans as it relates to the business loans acquired, you are still liable for the full amount of the secured business loan borrowed from specific financial institution. As such, if you are considering the acquisition of an unsecured business loans they may be in your best interest to do so only to fall into one of aforementioned categories as relates to professional service businesses.

 

However, even if you are not a professional service business he still may be able to qualify for unsecured business loans provided that your company has a substantial amount of history or accept credit cards. In regards to the first point here, if a business has been in operation for years or decades and has a very proven operating history as it relates to your profit and loss and cash flow analysis that a bank may be willing to extend to you unsecured business loans simply based on the historical profitability and positive cash flow of the business. The second point, there is a new type of unsecured business loan that is currently being granted by a number of merchant account providers and related financial institutions. This, however, is not truly an unsecured business loan in the fact that it is not secure by specific collateral. Merchant account financing companies, which are a form of unsecured business loans, take a certain percentage of each sale that you make and is deducted from each credit card transaction. This percentage constitutes a portion of the principle that he borrowed but also the interest payments that are due on this type of unsecured business credit facility. However, it should be noted that merchant account financing, while acting as an unsecured business loan, is an extremely expensive form of financing. In many instances, you can expect that the effective interest rate for these types of unsecured business loans can easily reach 15% to 20% per year. As such, you should only seek out merchant account financing your business truly has issues as it pertains to cash flow and that your business really does need to obtain this form of unsecured business loan.

 

As we will continue to point out time and time again, the most important things that you're going to need as relates to obtaining unsecured business loans it needs had a very, very well develop business plan. This is even more important than if you are seeking a collateralized business loan. Again, the risk that the bank is taking by providing an unsecured business loan to your company is that those essentially no collateral backing this credit facility so that in the event of a default on the loan the bank to recoup their investment. Approximately 5 years ago the acquisition of unsecured business loans was a much easier for many businesses to do the fact that credit was given very easily and in too many instances was granted to start businesses and expanding businesses. However, this is no longer the case and is not anticipated that will receive the unsecured business loan that you need given fact that unsecured business loan can no longer be obtained easily and without the appropriate credit, business history, collateral, or professional experience in place. As such, you may now want to seek unsecured business loans as it relates to the ongoing development of your entrepreneurial venture. You may want to instead focus your efforts on obtaining a secured business loan which clearly showcases which pieces of collateral are going to be used in the event of a business loan default. However, unsecured business loans can be obtained if you are a high net worth individual or you have a substantial amount of tangible property. While this is technically constitute an unsecured business loan, the fact that you have a tremendous assets in place that ultimately it can serve as the collateral for loans. Additionally, ib light any other credit facility provided in today's economic climate, you will absolutely be required to personally guarantee any type of unsecured business facility that you are seeking.

 

For the most common forms of unsecured business loans comes through the usage of business credit cards. Like with any other credit card, it is your personal credit for your business credit that secures the loan itself. However, as we all have experience with credit cards, the interest rates that are tied to unsecured credit facilities are very high. If, you are able to qualify for unsecured business loans be careful even fully anticipate that the interest rate they are going to pay will be somewhere in the neighborhood of the prime interest rate plus 7% to 14%. As such, and as we can see through the discussion of this article, unsecured business loans are a very expensive way to launch your business operations or expand your company's existing business operations.

 

Returning to what we have mentioned above in regards to who qualifies for unsecured business loans, again, it is most common that these types of credit facilities are granted to professionals that have specific license showed her experience in their field. However, again, certain businesses to qualify for unsecured business loans despite the fact that they're not on that they're not professional practices. Recently, we have worked with a client that operated as an IT consulting business that generated highly recurring streams of revenue from the ongoing maintenance of computer networks on behalf of their clients. These contracts were guaranteed not only by the large business customers the body at several municipal government agencies for which this firm had clients. As such, they were able to obtain an unsecured business loan do to the fact that he streams of revenue they generate, on a monthly basis, were nearly guaranteed based on their continuing service for their clients. If you operate a business that generates highly recurring streams of revenue in your business then very well may be a key candidate for unsecured business ones. However, if your business is primarily engaged in the sales of products, maintaining inventory, or operating a business for product distribution then it may be in your best interest in having a secured line of credit or secured business loan may be a much better interest for your business as the interest rate associated with the loan will be substantially lower than that of an unsecured business credit facility. As always, if you have questions as to which type of credit facility is most appropriate for your business then we strongly recommend that you speak with your certified public accountant or a qualified business consultant that can assist you in determining which types of financing are most appropriate for your business and the anticipated costs that come from obtaining specific forms of capital that you need. Any major transaction that you engage in life, whether as purchasing a home, purchasing a vehicle, or financing a new piece of equipment, it is imperative that you focus on the interest rate costs that are associated with the financing you need. In one of our previous discussions, we touched upon the fact that many entrepreneurs are willing to accept the first offer that comes by as it relates to obtaining business financing. This is especially true among individuals and businesses that are seeking unsecured business loans. However, we strongly recommend that you shop around for the best price possible, in terms of interest rate, as you seek out the unsecured business loans. If you are unable to do this on their own then we also recommend that it may be in your best interest to work with a commercial loan broker will be able to effectively introduce you to lenders that specifically make unsecured business loans.

 

As it relates to the companies that provide unsecured business loans to cut customers it is more likely the work of an independent finance company rather than a traditional banking institution may work better for you. Many institutions, due to continued regulations as it pertains to unsecured business loans, are now unable to provide unsecured business loans to their customers unless they meet stringent credit and collateral protocols that ensure that the unsecured credit facility will be repaid in the event of a business default. However, there are a number of businesses out there that specialize in higher risk loans for qualified companies. However, much like taking out any type of credit facility from a traditional banking institution, you'll need to have outstanding personal credit, outstanding business credit, and a highly developed a business plan that clearly showcases why you need an unsecured business loan. Many commercial loan brokers work closely with these types of financial institutions that do not operate as traditional banks, with the intent to place higher risk loans. In some instances, unsecured business loans come in the form of hard money mortgage financing. As another caution, it should be noted that hard money lenders and other high-risk lenders charge exorbitant upfront fees at the time of closing as well as very high interest rates during the term of the loan. Furthermore, these credit facilities are often meant be used only for a six month to two-year period. As such, you need to evaluate how long you need an unsecured business loan for as it pertains to your business operations. It is very rare that any lender will provide an unsecured business loan for a significant time frame to you and your business. Again, this relates to the fact that there are a significant amount of risks with providing unsecured business loans to companies.

 

In regards to a different type of financing in regards to unsecured business loans you may also want to look into an unsecured business line of credit. For many businesses, that need  an unsecured business loan, in regards to risk, by not receiving all of the capital that you need up front – you may be a good candidate for this specific type of financing. This is especially true if you are going your business at a measured pace and not require a full upfront amount of unsecured business financing in order to grow, maintain, develop their business activities. Additionally, if you are seeking unsecured business loans then you will need to pay the continuous amount of interest on the entire loan once it is received. In regards to an unsecured business line of credit, you only pay interest on the drawdown balance as you use it.

 

In many respects, an unsecured business line of credit operates in a very similar capacity to that of a credit card. However, unlike the credit card, a business line of credit often has a specific term in which you can use it. Additionally, you can continually repay the credit facility and continually redraw those funds again, as if it were a business credit card. As such, we strongly recommend that you determine whether or not you need up front business loan for a business line of credit depending on your cash flow needs in regards to your business. Returning again to our discussion as a relates to professional practices, many firms opt to use a secured or unsecured business line of credit rather than a business loan since they're able to drawdown effectively to capital they need from time to time. This not only saves you a tremendous amount of money in regards to interest payments but also helps you maintain a better cash flow. In many of our future discussions, we are to focus on the benefits of using a business line of credit rather than a business loan in order to finance your ongoing business activities. It should also be noted, that banks are far keener to provide an unsecured business line of credit rather than an unsecured business loan. This, of course, is because that banks and other financial divisions can then continually gauge how your are using this line of credit and concurrently showing that you are remaining within the covenants of the lending agreement. Additionally, in many instances, you will be required to maintain your company's operating account with the same financial institutions as they provide you with an unsecured business loan or unsecured business line of credit. This is so that the financial institution that extended you this credit can continually monitor the cash flow of your business through your primary operating account. With the consolidation of many banks over the past three years, many individuals and businesses now use one single financial institution for their checking account, savings accounts, and lending activities. If you do intend to secure an unsecured business loan or line of credit them strongly recommend that you first look to do so with financial institution that your business currently uses for its operations. Banks and other financial institutions want to have you as a customer as a relates to your borrowing needs, but also to have you as a customer as it relates to your checking account, investment account, and other financial insurance that you need in order to further both your personal and business finance operations. The truth of the matter is that if you are able to maintain all of your financial activities with one financial institutions then will be a far better position to receive the unsecured business loans that you are seeking.

 

The first step to obtaining unsecured business loans is the first speak with your business banker as to what the typical terms are then put the typical requirements of as it pertains to this type of credit facility. Your business banker will be able to effectively inform you what the specific requirements will be as relates to your personal credit, business credit, general business activities, the length of time in business, and other considerations that the bank will need when determining whether or not to provide capital for your business in unsecured manner. Our experience in regards to working with many of our clients is that we have found that many personal bankers and business bankers immediately refer customers to obtaining a secured business loan versus a credit facility that is not secured by any form of collateral. As such, and again, you should thoroughly make sure that you are qualified candidate for an unsecured business loan even before applying for this type of credit facility. Again, the first that it is simply speak with your business banker to determine whether or not the financial institution that you work with it even granting unsecured business loans at the moment. At the time of the writing of this article, more often than not, you'll find that your business banker will quickly inform you that they are not presently issuing unsecured business loans to their customers. Typically, in today's credit environment, the only companies are receiving unsecured business loans are extremely large corporations, publicly traded companies, and highly established organizations that have hundreds of millions of dollars in assets and are able to take out a small portion of the capital need in unsecured format. It should be noted, that these major organizations despite the fact that they've been in business for years and have hundreds of millions of dollars in assets are still work required to pay substantial interest rates on the unsecured business loans at a takeout from financial institutions. As such, the most established businesses are shying away from obtaining unsecured business lines of credit and other unsecured credit facility is due to the fact that it is simply become extremely expensive.

 

If you want to, again, set in your quest for obtaining unsecured business loans then we strongly recommend, again, first the speak your business banker. They will provide you with the appropriate information necessary as to whether or not the financial institution (or ban) is even granting unsecured business loans at this time. Second, the strongest piece of advice for you, as the speak with a business broker that can effectively assist you in finding unsecured business loans as they typically have relationships with hundreds if not thousands of lenders throughout the United States that are willing to make higher risk business loans for their clients. Again, you should fully anticipate that if you are able to obtaining unsecured business loans then the interest rates and the terms of this type of financing are typically unfavorable for your business. This, primarily, is due to the fact that the interest rates will be very high in the term of the business loan a very short period

 

If you are seeking a small amount of unsecured business financing them strongly recommend that you take a look at a new business that has been developed called Prosper.com. This new lending website assists individuals that are providing the capital that is needed for a year business loans that carry interest rates from 7% to 25% depending on your personal credit score. It should be noted that you are seeking this type of unsecured business loan that is going to be based on your personal credit this could be the determining factor as to whether or not these individuals will put up the money for the finance you need. This is a very innovative way of financing and the trend within the industry, as it relates to unsecured business loans, are expected to follow business models that have been developed much like companies like Prosper.com. However, the most you can borrow it in unsecured capacity that many of these websites is $25,000. This is primarily due to the fact that these loans are not considered to be business credit facilities but rather personal loans that are based on your current income and current credit score. Many states have enacted laws that very clearly differentiate consumer loans versus business loans. As such, many of these new websites that are focusing on developing lending communities are focused on providing consumer loans to the general public. However, the proceeds from these personal loans can be used for business purposes. Additionally, you absolutely must discuss this with your certified public accountant; in many instances the interest that is charged by these individual lenders is tax-deductible provided that the financing is being used for a business purpose.

 

In closing, to unsecured business loans is not impossible but it is extraordinarily difficult. We strongly recommend, especially if you are new entrepreneur, they focus on obtaining secured business loans so that you are more it enabled to receive term sheets from lenders that provide you with the favorable interest rates, repayment periods, and covenants that are more appropriately suited to your business. Also, as we have mentioned, and not to  beat a dead horse, the advice provided by a certified public accountant, commercial loan broker, business loan broker, certified financial planner, or other business consultant will be invaluable to you as you determine which type of financing is most appropriate for your startup venture, developing business, expanding business.


Thank you again for tuning into TheFinanceResource.com. We look forward to providing you with the information you need in order to make decisions regarding unsecured business loans and related credit facilities.


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