Businesses need access to capital for expansion, new products and services, and other initiatives. However, some companies may feel uncomfortable borrowing money through traditional lending sources due to the high-interest rates and unfavourable terms.
Thankfully, there are alternative financing sources that offer numerous advantages. For example, unsecured loans are one option that can provide fast cash flow and less-hassle application since they do not require a lot of paperwork or pledging collateral. Keep reading to learn more about the different benefits of getting unsecured business loans for your business.
Why Should You Apply For Unsecured Loans: Top 10 Benefits
Besides being slow, bank finance isn’t always accessible and obtainable for everybody. Usually, only those businesses with collateral to provide, a high average turnover, well-built credit and two or three years of profitable trading history are qualified for a business loan from a bank. But on the flip side, unsecured loans are still within reach of most businesses, even if these businesses have only been trading for six months and more.
2) The Application Process is Quick & Simpler
In general, applying for any loan can be a long-winded process and a taxing experience. Lenders need assurance that you are responsible enough to commit to your repayments. For instance, suppose you applied for secured loans – extensive vetting is required, and your collateral will be assessed thoroughly to identify its true value.
However, you’ll skip this lengthy, complicated and painful procedure with unsecured loans. Since no collateral is required, the time spent reviewing assets is reduced, and the distribution process is simplified. Moreover, you can even apply for unsecured loans online from the comfort of your home. Just complete filling out a simple form, upload your supporting documents, and you could have a quick answer. Likewise, getting approval in less than 24 hours is also possible. For this reason, many businesses that are urgently seeking financial assistance opt for unsecured loans.
3) No Need For Collateral
By definition, collateral is a form of security that refers to any valuable asset you own, such as a company car, property, equipment etc. When you apply for secured loans, lenders will oblige collateral from you to justify the risk involved in lending. As such, if you default on your loan, your lender will utilise your collateral to make up for any losses incurred.
But this is not the case for unsecured loans. In fact, from the perspective of business owners, one of the primary upsides of unsecured business financing is that you don’t need to sacrifice your collateral to secure a business loan.
Instead of pledging assets, your lender will examine things like your:
- Credit history and credit score
- Employment status, income and savings
- Bank statements and financials
- How much money you’re looking to borrow, and your ability to repay the loan successfully and promptly.
4) No Risk To Personal Property
Compared to secured loans, the best thing about having unsecured loans for your business is that your personal property is not in peril or at risk. You don’t need to worry about losing your home or other valuable assets in the event you get laid off and making payments on time becomes tough or impossible for you.
5) Fewer Upfront Costs
When you plan to get a secured loan, you are obliged to pay the costs associated with valuing your assets. On the other hand, securing a loan through an unsecured lender can help you save money on expenses and free up more cash flow to grow your business. This is because you won’t have to pay as much upfront.
6) Minimum Qualification Criteria
The qualifications for unsecured loans are less rigid or strict. As long as you can showcase that you have a solid credit history and a secure and stable source of income, obtaining unsecured loans would be much easier. That said, you must provide your supporting documents, such as your permanent account number (PAN) and unique identification (UID), to prove that you qualify without a doubt.
7) Flexible Usage of Funds
If you go for traditional loans, you may not have the freedom to use the funds based on your preferences. Furthermore, most banks will entail you to submit a detailed and extensive business proposal plan before you can get the funds. But it’s different with unsecured loans—you can use the funds for multiple purposes, whatever you like. The choice is entirely up to you whether you use it to hire more employees, renovate your premises, conduct R&D, open more locations or for any other reason. This renders more flexibility to utilise the funds for much-needed expenses.
8) Lesser Documentation
As an SME company owner applicant, your documentation load is minimal for unsecured loans. This type of business loan is purely based on your creditworthiness and not on the collateral you need to give, so banks will only ask for primary documents like your business profit and loss statements and your bank account statements.
9) Positive Working Capital
We all know that businesses of all sizes must have positive working capital in order to manage day-to-day operations smoothly. But sometimes, maintaining a positive cash flow can be challenging due to outstanding bills, inconsistent customer payment schedules and other operational expenses.
That’s why getting an unsecured loan is one of the best decisions you can make for your business. An unsecured loan acts as a cash buffer that can help you easily meet your daily expenses, like stocking inventory, paying suppliers, salaries, rent and more. And other than that, you can also concentrate on your business’s long-term growth instead of being burdened by short-term fund requirements.
10) Paying Off An Unsecured Loan Can Build Trust
Take note that getting approval for financial backing is all about trust. So if you obtained an unsecured loan and paid it back in full and on time, it would help you establish and develop your trustworthiness in the eyes of lenders. Hence, increasing your chances of borrowing more funds in the future.
Taking out unsecured loans for your business provides many benefits. By borrowing money without having to put up collateral, you can get funds more quickly, efficiently, and with less risk than if you were to go through a traditional lending institution. This can help you jumpstart your business and make quick advances in areas such as expansion. Thus, ensure that your requirements are complete and that you are a reliable borrower who can pay back on the dot. Thanks for reading!
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