Probably the hardest task for most business start-ups is getting the necessary funding in place to launch the business. If you are unable to raise this capital yourself either from your own savings or via personal loans from people you know, you generally have to ask for a bank business loan, which generally requires that you put up some form of equity to make this a secured loan.
There is, however, a third way of raising business funds, which is less well known, namely an unsecured business loan. Unsecured business loans have different requirements to secured loans and depend much more on the commercial viability of the business concerned.
If the first two routes to financing your business are not possible, here are the two primary factors you need to consider before applying for an unsecured business loan.
1 – Your track record
Since unsecured business loans tend to be granted on the basis of how successfully a business is already functioning and the extent to which its financial wellbeing is likely to continue into the future, business start-ups face additional challenges to those already up and running.
Any unsecured business loan will require you to make as watertight a case as possible as to why your new business is likely to succeed. This will include your experience in the type of business you plan to start, the experience of those people, if any, you will be working with in your new enterprise and anything in the way of necessary equipment and work environment you may already have in place.
Unless these basic elements add up to a business that can be seen as one that can be seen as potentially profitable, your application for a loan is unlikely to be successful.
2 – The state of your personal financial health
Regardless of who offers you an unsecured business loan, they are taking all of the risk if anything goes wrong and your business fails. Because of this, especially if it is a business start-up, the lender will be gauging a big part of their decision on the way they evaluate you. In this regard, having a good credit rating and a clean financial record is the most obvious starting point in making this assessment.
But that is not their only consideration. They will also look at the current state of your income and the extent to which immersing yourself in your new venture will affect this. Personal liabilities and family obligations will also be taken into account.
Other considerations before you take the plunge
If the two areas outlined above are in good shape, you may be able to get the unsecured business loan you are looking for. But it may still be just out of reach. Two further actions you could take to improve your chances are to put a percentage of what you need to raise into the business yourself, or if this is not feasible, try to find someone who is prepared to act as a guarantor for at least part of the loan. This gives the lender further commitment on your part that you are serious about your business, as well as reducing their risk in backing you.