Unsecured business loans.
What is an unsecured business loans? this is a loan that allows you to borrow money without using any of your company assets as security which in turn should you default on the loan would not put any of these company assets at risk. Quite often company directors will also use their own personal property as assurance of repayment against these types of loans this isn’t something that we would suggest as should there be a problem within the business and you do default on the loan these personal assets would then become at risk, for example a lot of directors tend to use their home this would be a big no-no from my point of view as the lender is well within their rights to seek to sell the house to clear the company debts.
For unsecured business loan of these type you will need to be able to prove your business earnings on a monthly and yearly basis so the lender can see that this loan will be repaid should your company also pass the required credit scores these loans can be fast and very effective. Typically an unsecured business loan can go as high as £200,000 paid instantly into the company business accounts. This can be spent on whatever the company sees fit from wages to stock one thing to note most funding banks or private equity firms will require the company to have been trading for over two years and have a clean and up-to-date credit history most companies will lend this money over 1 to 5 years.
One of the perks of these types of loans is that there is a lot of private equity firms out there that will supply business loans, not just the traditional banks or building societies so should your credit in the company not be as strong as you’d hoped there are other options. Most companies at some point will need some form of money to get the business moving forward like most people you honestly think the bank will be there to support you but these days the banks aren’t particularly willing to lend to small businesses especially if they haven’t been around longer than two years most businesses will be instantly declined and referred to another bank. This is why some directors will use their property as assurance of repayment this is when you can seriously put your house at risk because nobody obviously starts a business thinking it’s going to fail, but sometimes things out of your control can cause a business to fail.
This is where the private equity firms really come into their own as a lot of them only require a business to have been around for nine months and to be turning a small profit to make them viable for a loan, you will also find that these private equity firms are a lot more flexible on the credit scores than the banks are they use a lot more common sense where the banks are instructed to decline scores under 40. A lot of these firms will also customise your repayment schedule so should you be a seasonal business that are very busy in the summer they will wake sure that your payment structure reflects that, your winter payments will be smaller than your summer payments the higher summer payments will be used to make up for any of the shortfall from the winter, they understand that businesses do not always have busy times throughout the year this is a nice little-added bonus. Most of these companies upon acceptance of your loan will make the funds available to the business within two working days please bear in mind should this fall on the weekend it can take up to 3 to 4 working days as it takes a little bit longer to process the required forms.
Should you be accepted by a bank you may find the funds can be released a lot quicker but one downside of having a loan through a bank is that the interest can be a little bit higher they also can be a lot stricter on your repayment time so should you be busier in the summer unfortunately they are very unlikely to reflect that in your payment schedule. However if the loan was secured against your property you may find that the interest rate will be lower this is because the lender has collateral against the payment so should you fail to make them and default on the loan they have a way of getting their money back. This sometimes very alluring for customers but this is something we would definitely suggest you don’t look at as you don’t want to put your house and your family at risk should your business venture fail. Please note should you fail to make the monthly payments this will also be reflected on your company’s credit score which will make their creditworthiness undesirable for any future lending this also does reflect in the terms that some suppliers will give you for products you purchase it makes it less likely that they will give you a 30 day 60 day credit notice if you have a poor credit score 99% of companies these days will credit score company before going into business with them so this is something that you do need to be aware of and make sure you’re on top of as this could have a detrimental effect upon your business.
One thing to note as a business owner you are eligible to many different types of loans and funding opportunities to help grow your business this isn’t something I will go into deeply within this article but to give you an idea there are other options out there for you for example bridging loans, balloon loans, interim loans and letter of credit that is just for examples of the 50 or 60 different type of loans within the business market currently.