Times are tough. Running your own business is even tougher. So, there may come a time when you get yourself into a bit of a bad spot, a little bit of a pickle and you need to be bailed out.
Having a bad credit record in business or even personally can cause all sorts of issues. You won’t be able to get credit, which is ironic as its money, that you need when you are in a bad patch and especially when you are starting out with a new business. But understandably, banks and financial institutions get a little nervous, worrying that you may not be able to pay the loan back.
What is a Secured Business Loan?
Most times, lenders will offer you a secured business loan. Secured business loans protect the financial institution, in that they use property such as your house, your vehicle and any other tangible item, even debentures and shares, to secure the loan. This can be a scary agreement to get into, as it means that if your business goes under, you stand the chance of losing your personal assets. You are, essentially putting your family’s security on the line for your business. This is not a good idea.
Unsecured Business Loans and Why They Work
Unsecured Business loans work on a slightly different principal. The financial institution, normally an alternative lender, will loan you the money you need based on the history of your business, the past annual turnover and general strength and durability of your business. Sometimes they will require your personal credit history as well.
The downside to unsecured business loans is that they come with a price. As the institution is putting their neck on the line, they will want to recoup as much costs and fees as they can, hence the interest rate on unsecured loans is high, higher than the generic secured loan.
Now, you may be wondering how you will even get an unsecured loan if you have bad credit history. The alternative lender will normally take into account a minimum period of 2 years of your business history. They will look at the whole picture, the bigger picture in fact, and with an open mind. Taking into account what your business looked like before you hit the bad credit spot and what the potential of your business could be going forward.
Most traditional banks will not do this. They are generally only interested in the figures at face value and most times, it is a computer-generated system that analyzes this.
If yours is a start up business with no real financial history to show, you will need to present your detailed business plan. And it had better be a damn good, no, excellent business plan! Get help if you are not very good with this sort of thing, because it could mean the yes or no in securing that much needed loan.
The lender will offer you a few different options based on your annual revenue and also the years your business as been, well in business. Each option will come with its own parameters and conditions. Those T’s and C’s (Terms and Conditions) can be a little hairy though.
From different scales of interest rates to the term of the loan, you will need to decide what works best for you and your business.
Startup Businesses & Big Mistakes on the Financial Front
Taking out that unsecured loan may seem a daunting and frankly petrifying step, but if you are to at least give this new business of yours a chance or if you are already an established business that needs a boost, this may be your only way.
There are a few small facts to always remember when deciding to take out any form of loan –
- Be Positive – always believe that you will be able to pay the loan off. As soon as you start doubting your ability or that of your business, then that negativity will flow over into everything. Negative thoughts breed negative results.
- Honesty – you may want to fluff up your history or hide certain facts from the lender, in the hopes that it will make your application better, but rather don’t. Lenders have a way of finding out even the smallest details. Honesty is really the best policy, when it comes to loans, at least.
- Money Allocation – once you have secured the loan, be quite sure where you are investing all that dough. If it is into staff, then be sure you hire the right staff. If it be into more equipment, then ensure you get the best deal you can from the suppliers. It would be a sad day when that money is wasted and you sit with a whopping loan to pay off and nothing to show for it.
In conclusion, taking out an unsecured business loan is not be a bad business move. Sometimes, you need to take a step backwards in order to take two steps forward.