Before you think of applying for any business loans, you need to understand the benefits and how to get unsecured business loans for startups which is more or less saying you want a business loan without a collateral.
The most crucial factor about building startups lies in the need for adequate funding. A lot of times, sponsors and investors are barely enough, and you still have more money to do a lot of things. This makes unsecured business loans a better option to kick start your entrepreneurship journey.
Naturally, for you to access some small business startup loans, you must provide equivalent collateral that matches the worth of the loan that you are requesting.
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This collateral might come in the form of your assets, personal belongings, real estate, savings, or property. And if you cannot get these, you know unsecured business loans are your sure bet to build your startup.
We understand that a lot of budding entrepreneurs wish they can access some small business startup loans, or preferably, business ‘unsecured’ loans.
However, the truth remains; it is difficult in most African Nations to get an agency to give out loans in Kenya without security and as well in Nigeria especially. Most lenders wouldn’t want to take the risk of giving any startup a loan without getting something to hold them to.
The challenge of getting startup business loans with no revenue, collateral, or credit is not limited to only Africa. Startups in the USA understand that there are requirements that you must qualify for, to gain access to an unsecured business loan.
To make things easier for you, we have provided this article to teach you all the important things that you need to know about unsecured business loans.
- What are unsecured business loans, their benefits, and their disadvantages?
- How do unsecured business loans work?
- How can I get a startup business loan without collateral?
- Is it possible to get an unsecured business loan?
What are Unsecured Business Loans?
Unsecured business loans are loans that do not require any collateral, revenue, or security at the point of application. In an Unsecured business loan, the risk level of loan acquisition is somehow transferred to the lender.
These loans are issued out upon proper analysis of the business in need of such loans. It is up to the lender to decide if you are credible and trustworthy to release such loans to you without collateral.
What are the main Advantages and Disadvantages of an Unsecured Business Loan?
Advantages of Unsecured Business Loan
- No collateral
- Limited risks
- Faster loan application process
- The loan company has no leverage on your assets
Disadvantages of Unsecured Business Loan
- Increased interest rate
- Smaller amounts available to borrow
- Strict qualification process
Why do you need business unsecured loans?
There are a lot of reasons why people aim for an unsecured business loan. Getting familiar with the purpose of an unsecured loan will help you gain more clarity about the process.
- When your startup business has an urgent need for capital
- When you do not have high-value assets to compensate for your loans
- When you need to handle short-term purchases, debts, or expenses needs
Understanding these gives you a better edge to figure out if unsecured loans will favor or challenge your business growth.
How can I get a startup business loan
Irrespective of your location, startups in Nigeria, or parts of Africa, and countries in Europe too can learn how to get an unsecured business loan without collateral.
Here are four simple steps of getting a startup business loan without collateral.
1. Know your financial budget
Knowing your financial budget will help you know the best type of unsecured business loan that meets your budget. You must place side by side your business initiatives or required expenses to understand the small business startup loans that meet your plans and you can easily repay.
2. Weigh the options
Many small business startups make the mistake of jumping into any business unsecured loans without weighing the options. You must have a full understanding of the types of unsecured startup business loans and how they work.
3. Analyze your chances of qualifying for the business loan
There are numerous processes used to determine if you qualify for an unsecured business loan. These factors are set by the financing company, legal policies, and your ability to show yourself credible enough to deserve a loan without collateral.
To stand a chance to get qualified for an unsecured startup business loan, you must provide;
- A good credit rating (score) of your company
- A systematic workflow
- Business history
- Cash flow, financial statement, Profit and loss, presented in a balance sheet
- Business Plan
The goal is to let the lender know that you are not running away with their money and to see how viable your business solutions are.
4. Choose a lender that aligns with your goals and objectives
Now that you have the right documents, a clear financial and business plan, you can proceed with choosing a lender. Most lenders do offer unsecured business loans, but you must decide to pick one that aligns with your interest. You can get an unsecured loan online with less paperwork, or you might prefer a walk-in office around your location.
You should also verify the type of unsecured small business startup loans that they are offering and if you are comfortable with it.
Four Types of unsecured business loans for startups
1. Personal Loans
Personal loans might sound like a bad idea to some startups, but it is also a good form of unsecured loans.
Personal loans allow you to use your assets as a guarantee, but not as collateral or a factor for approval. The loans are issued after analyzing your business plan and purpose for the loan and your credit profile.
2. SBA loans
Small Business Administration (SBA) loans are one of the most popular types of unsecured loans. SBA loans come with flexible payment conditions, low-interest rates but stringent loan policies.
3. Credit cards
You can also finance your startup with the use of small business credit cards. Calculation of Interests is according to your expenses on your credit card after your billing cycle.
4. ROBS funding and loans
Rollovers as business start-ups (ROBS) is a United states financing arrangement that allows you to make use of your retirement funds to settle your business costs.
5. Online loan options
Online loan options are the easiest unsecured loan application system. You just have to analyze their rules and apply them. Although, most online loan applications come with high-interest rates.
Is it possible to get an unsecured business loan?
It is possible to get an unsecured business loan. This will happen if you can get a good business credit score, a feasible plan, and documents that attest to your credibility.
A good business credit score is dependent on the financing or Loan Company that you are applying for. But to be on the safer side of getting an unsecured business loan, you should work on your business strategy to achieve a credit score of at least 600 – 650.
Financing a startup is usually not as easy as it sounds. You are tempted to give up the process when the expenses keep rising. An unsecured startup business loan can help you offset some debts, handle essential expenses while putting your business in good shape.