Unsecured small business loansPublished on 27th February 2017
When still undergoing the early stages of their business’s formation, many small business owners tend to use their own capital. Although this may seem a smart decision at the time, using up your funds so early on will have a detrimental effect on your business’s growth and long-term sustainability. It’s no secret that only 20% of new businesses survive and become successful.
In order to join ranks with this 20% of businesses, you must have a strong business plan and access to ample amounts of external funding. As a small business owner, your focus is going to be occupied by a number of different challenges, one of which should be expansion. In order to complete essential projects and meet keys deadlines, finance is a must.
A popular method of finance among business owners, this type of finance can allow you to secure sums ranging from £5,000 to £1,000,000 – usable in however way you see fit. However, this type of finance can be challenging to acquire at such an early stage, especially when dealing with large sums.
The reason for this is that if your business should become unable to repay the loan, lenders will be unable to seize assets. As such, you’re asking them to take a high-risk decision on your business; a decision many may be unwilling to entertain. Unless you have a clean credit score, have run a successful business in the past and have a strong background in the sector concerned, acquiring an unsecured loan can be a challenge.
If you’re adamant about acquiring an unsecured loan you could sign a personal agreement. Plus, this option can also help you to acquire larger sums as it gives a much-needed confidence boost to a potential lender. However, you need to keep in mind that by signing such an agreement, the lender can pursue you personally through the courts for the remaining sum, plus any other incurred costs. If you’re unwilling to take such a risk, there are other finance products available to you, such as Invoice Finance, Merchant Cash Advance (MCA) and Revolving Credit Facilities.
Invoice finance is an extremely useful financial tool that unlocks the cash sealed away in any of your unpaid invoices. Offering your business a loan which is equal to 90% of a single invoice’s total worth, this means of finance can help carry your business until the customer pays up.
Merchant Cash Advance:
To be eligible for this method of finance your business needs to be equipped with Chip ‘n’ Pin or any other type of card reading device. When applying you will need to present business reports detailing all of your latest card transactions. You’ll need to show reports for 2 consecutive months, or possibly longer depending on the lender. This is necessary for demonstrating the reliability of your clientele’s card spending behaviour to a potential lender. MCA loans start from £5,000 up to as much as £100,000.
Revolving Credit Facility:
If you’re seeking to get your short-term expenses sorted but want to use an unsecured finance solution, you could apply for a Revolving Credit Facility. This works by allotting an allowance to you each month which can act as a sort of financial ‘handy buffer’. With many such facilities, interest is only added when sums are withdrawn – be sure to double check with your lender. However, should you withdraw more than the allotted allowance you’ll incur a penalty charge.
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