With so many expenses involved in running a business, gaining access to a loan can be a lifesaver. It helps ensure business continuity if you need to pay for monthly rent, buy new equipment, or take care of a host of other expenses.
One great option is applying for unsecured business loans. This type of loan does not require collateral, which many business owners would find appealing. But before you start looking for lending companies, there are a few things you need to understand to maximise your chances of qualifying.
Check Your Credit History
When it comes to unsecured loans, the lender always pictures a big risk. To help minimise it, they try to be more selective about who they approve of giving a loan. Part of their screening process is to check each applicant’s credit history. It points to the debtor’s credibility and diligence in paying off previous loans.
Raise Your Credit Score
If you have plans to apply for unsecured business loans, make sure you have a good credit score. This will help assure potential lenders that you will be capable of paying off the loan. What is more, your credit rating will have an impact on the amount that you borrow. Some companies can lend up to $300,000, which is payable in 24 months.
Have a Healthy Cash Flow
Cash flow consists of the difference between the amount of cash and cash-equivalents that go in and out of business. Most lending companies use it to measure how much cash a business has to pay for the loan.
To gauge your chances of qualifying for an unsecured loan, check if your business has solid cash flow. A good practice is to check it every three months. This allows you more time to do what is needed before you approach a lender.
Have a Solid Business Plan
Before applying for a loan, it is important to come up with a detailed business plan. Most lending companies want to see whether your business has clear goals and know what steps to take to get there. This is understandable as unsecured business loans put the lenders at risk. Dealing with businesses that have a clear path to success is one way to minimise this risk.
Do Not Submit Too Many Loan Applications
Applying to multiple lenders with the plan of choosing the best option may not be a good idea. This will trigger multiple inquiries for your credit report, which lenders interpret as a sign of high credit risk. This will lower your credit score and hurt your chances of being approved for a loan.
It is better to compare the loan rates, then choose the best option before applying for a loan. To do this, you can go to online financial marketplaces, where you will find a wide variety of lenders to choose from. It will only trigger soft inquiries, which would not have an impact on your credit rating.
Prepare Your Documents Ahead of Time
Most people dread paperwork, but you must take care of it if you want to apply for a loan. This will increase your chances of qualifying and speed up the process at the same time.
Aside from the business plan, you need to prepare documents showing how long your business has been running, the industry you are in, invoices, tax returns, financial datasheets, and others.