Getting instant approval for an unsecured business loan is every entrepreneur’s dream. These types of loans offer flexibility without the need for collateral.
In this guide, we’ll outline step by step how to increase your chances of approval. You will also find different types of unsecured business loans that suit your needs.
Read on to discover how to get more things done in your business by accessing instant unsecured loans.
Unsecured Loans, Benefits and Risks
If you run a business and need some extra cash to grow or manage your expenses, one option is to get an unsecured business loan.
These loans require collateral, which means you don’t have to risk your company assets. They’re available from various places like traditional banks, online lenders, and credit unions.
The option is especially beneficial if your business is without valuable assets. However, it may require a personal or director’s guarantee, making you personally liable for repayment in case the business defaults.
Many unsecured loans get approved and funded faster. Online lenders, especially, can get you the money within a few days, unlike banks which might take longer. You don’t necessarily need perfect credit to qualify. There are different types of unsecured loans suitable for businesses with poor credit or less time in the game.
On the flip side, since there’s no collateral for the lender to take if you can’t pay, these loans are riskier. To make up for that risk, they often come with higher interest rates and fees.
Furthermore, lenders might have stricter rules. They often prefer businesses with good credit, a few years of experience, and high annual revenue.
In most cases, lenders will want you to sign a personal guarantee. Thus, you become personally responsible for repaying the loan. This can put your personal assets at risk if things go south.
Securing an unsecured Business Loan
To secure an unsecured business loan, you can explore avenues such as approaching a high street bank, engaging a financial broker, or exploring lending marketplaces like Funding Options.
The maximum amount you can borrow varies among lenders. It can be influenced by factors like annual revenue, credit score, and your business’s financial health.
Typically, these loans range from £5,000 to £500,000. However, there are exceptions for established businesses with a good track record.
There are four main types of unsecured business loans, including merchant cash advances, revolving credit facilities, business overdrafts, and business credit cards. Each option caters to specific needs, offering flexibility and varying borrowing limits.
Merchant cash advances
Merchant cash advances operate on a percentage of customer card sales, making repayments proportional to monthly business performance.
Let’s say you have a cool handmade jewelry shop. you might need some extra money to stock up on supplies or try out a new marketing idea.
Here’s where a “merchant cash advance” comes into play. We liken it to a friend giving you money today, and in return, you agree to give them a small percentage of your daily sales until you’ve paid back what you borrowed, plus their factor rate.
Instead of going to a bank for a traditional loan, you could get a merchant cash advance. The company will take a look at your business and sales history. Now, the interesting part – instead of a fixed monthly payment, they’ll take a small portion (let’s say 10%) from your daily sales.
If you had a great day and sold a lot of jewelry, you’ll pay back more. If it’s a slow day, you pay back less. This continues until you’ve paid back the agreed-upon amount.
Keep in mind, that they’ll charge you a little extra on top of what you borrowed. This extra amount is often called a “factor rate.” For example, if you borrowed $1,000 and the factor rate is 1.2, you’d end up paying back $1,200 (that’s $1,000 + $200).
These advances might be suitable if your business has a consistent flow of daily sales, and you need money quickly.
Revolving credit facilities
Revolving credit facilities provide flexibility for businesses with fluctuating cash flows, allowing you to withdraw, repay, and re-borrow funds as needed.
Instead of a one-time loan, you can open a revolving credit facility with a bank or a financial institution. We liken it to getting a special wallet with a predetermined amount of money you can borrow whenever you want.
There is an interest on this loan and depending on the company or bank, there could be an initial cost attached for accessing this credit line.
You don’t have a fixed monthly payment like a regular loan. Instead, you make monthly payments based on what you’ve borrowed.
If you had a busy month and made lots of sales, you can pay back more. If it’s a slower month, you pay back less. It’s a flexible repayment plan that adjusts to your business’s ups and downs.
These financial considerations are the trade-offs for the invaluable convenience offered by the revolving credit mechanism.
In scenarios where you need capital injections, such as investing in cutting-edge technology or diversifying your product line, the revolving credit facility gives you a responsive solution.
It is fantastic if your business has ongoing cash needs, especially if these needs vary each month. It gives you the flexibility to manage your expenses and grab opportunities without going through the whole process of getting a new loan every time.
This is because as you pay back what you borrowed, that money becomes available again in your credit. You can keep dipping into it, paying it back, and dipping in again – as long as you stay within your credit limit.
Business overdrafts
Business overdrafts offer short-term, interest-bearing solutions for unexpected expenses.
It enables you to access funds beyond your account balance. Thus, facilitating strategic moves such as seizing time-sensitive opportunities. Or, addressing unforeseen expenses without disrupting operations.
The bank sets a limit on how much you can borrow through the overdraft. Let’s say they set it at $6,000. So, you can use this extra support, but within this limit, ensuring you don’t overextend.
An overdraft comes with predefined limits and interest on the overdraft itself. A key advantage of a business overdraft is its seamless integration into cash flow management. It ensures your operational continuity by providing a buffer against short-term financial challenges.
How to Get Instant Approval for Unsecured Business Loan
Ultimately, choosing between secured and unsecured loans depends on your business’s needs.
These tips will help you access instant unsecured business loans:
1. Check Your Credit Score
Before diving into the loan application process, take a moment to check your credit score. A good credit score significantly improves your chances of instant approval. Keep your personal and business credit in good standing by paying bills on time and managing your finances responsibly.
2. Organize Your Financial Documents
Lenders in Australia often require documentation to assess your business’s financial health. Have your financial statements, tax returns, and bank statements ready. A well-organized set of documents can expedite the approval process.
3. Choose the Right Lender
Not all lenders are created equal. Research and choose a lender that specializes in unsecured business loans and has a reputation for quick approvals. Online lenders and fintech platforms are often more agile in their processes compared to traditional banks.#
4. Prepare a Comprehensive Business Plan
A solid business plan not only helps you articulate your goals but also showcases your commitment to success. Lenders appreciate applicants who have a clear vision and strategy for their business. Outline your business model, market analysis, and financial projections.
5. Demonstrate Cash Flow Stability
Lenders are interested in your business’s ability to generate consistent cash flow. Showcase a stable financial history. Detail how you manage income and expenses. This provides lenders with confidence in your ability to repay the loan.
6. Apply for the Right Amount
Determine the exact amount you need and avoid applying for more than necessary. Lenders may be hesitant to approve larger amounts without a robust financial justification. Applying for a realistic sum increases your chances of instant approval.
7. Utilize Online Application Platforms
Many lenders in Australia offer online application platforms that streamline the process. Utilize these platforms for a quicker turnaround. Be sure to double-check your application for accuracy before submission.
Conclusion
Securing an unsecured business loan in Australia can be a straightforward process. It could be swift and instant too, if you approach it strategically.
Maintain a good credit score, organize your financial documents, choose the right lender, and demonstrate the stability of your business. By doing so, you increase your chances of obtaining instant approval.
With these tips in hand, you’re well-equipped to propel your business to new heights.
