If you’re starting a new business or need capital to expand an existing one, unsecured business loans are an option. However, they may be harder to acquire if your credit score is less than perfect.
When selecting a lender, take into account their eligibility requirements, loan options, costs and customer service ratings. Evaluate the advantages and drawbacks of each to find the most suitable unsecured business loan for your requirements.
No Collateral
Entrepreneurs who don’t want to risk losing their assets if they default on a loan can benefit from secured loans, though this type of financing tends to be more costly than unsecured ones.
Lenders often opt for unsecured business funding because it reduces their risk. After all, they cannot take away assets that a borrower pledged as security in case of default.
Higher Interest Rates
Unsecured business loans for bad credit provide the cash flow necessary to expand your business without risking any of your personal assets. Unfortunately, these loans have higher interest rates compared to secured ones.
One of the primary factors determining your interest rates is your credit score. Your personal credit history, income and cash flow projections are all taken into account when calculating this number.
A low score means you’ll pay more in interest and may find it harder to obtain other credit products in the future. But, you can improve your credit score by making timely payments and avoiding late or delinquent accounts.
Lenders take into account your company’s age, cash flow stability and collateral when making their decision. By emphasizing these key areas of your application, lenders will find it more appealing.
Shorter Term
Term loans are an alternative to traditional bank loans, in which your small business receives a lump sum up front and repays it at fixed intervals over an agreed upon period. They can be used for various expenses like equipment/inventory purchases, payroll services, working capital needs and more.
Lenders typically require that businesses have been operating for at least six months in order to be eligible for an unsecured loan. This helps them assess their risk when lending money to a company and guarantee they can fulfill the terms of the loan agreement.
Unsecured business loans with bad credit can be an ideal solution for business owners who require short-term cash flow support. It is essential that you select the product and repayment schedule that are most suitable to your particular company’s circumstances.
Requirements for Credit Scores
If your credit is less than stellar, traditional business loans may be harder to come by. Fortunately, there are some lenders that specialize in small business financing for startups with impaired credit histories. These businesses provide quick access to capital with accommodating eligibility criteria and low interest rates.
Some lenders do not even require a minimum credit score when determining your eligibility. Instead, they consider factors like your business’ cash flow to assess whether you meet their standards.
For instance, if you have steady cash flow and can offer collateral such as a personal guarantee within your contract, lenders may be more inclined to approve your application.
Additionally, if you have poor credit but are willing to make a down payment on part of the loan for equipment purchase, lenders might be more inclined to consider your application. The extra cash could help build better business credit over time.
