Unsecured Business Finance
Unsecured business finance is a monetary finance that is not secured against the borrower's assets. There are a wide variety of unsecured business finance options that may be available from financial institutions under many different appearances or marketing packages. Some of the most common and prominent ones are:
- credit card debt
- personal loans
- bank overdrafts
- credit facilities or lines of credit
- corporate bonds
Need for Unsecured Business Finance
Unsecured business finance is particularly planned and intended to meet the diverse needs of organizations and individuals. It is not essential for borrowers to put their property as a security against the loan with the lender. A borrower can have the benefit of adaptable and flexible monthly payments option offered by unsecured business finance lender.
Varying Interest Rates
The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law. Sometimes a few identifiers are necessary to help you classify the kind of finance required. For an unprepared borrower it can sometimes be very perplexing to understand the financial language in UK. There are a number of investment companies that would be able to help you on these matters.
Purposes of Unsecured Business Finance
There are a number of independent and private organizations that specialise in facilitating new and established businesses raise finance through government aided schemes and grants. Such finance is available for the following purposes:
- Obtaining a new business or franchise
- Expansion and development of an existing business
Some investment firms grant unsecured business finance for large amounts, and for the long term. The unsecured business finance can be utilised to support a part of total purchase price, working capital, and the purchase of business assets for the growth of the business. The key benefit is that unsecured business finance does not require a personal guarantee, and personal assets are not used as security.
Unsecured business finance is one of the most common and easiest ways to obtain the funds one needs to initiate or to further expand the business. The unsecured business finance can be put to use for a variety of commercial purposes, ranging from real estate acquirement and refinance to business acquisition and working capital.
No need of Collateral
From the borrowers’ point of view the most attractive feature of the unsecured business finance is that it is not held by a collateral or property of the borrower. The borrower’s interests are immediately safeguarded, as his property is not at risk. With unsecured business finance, a borrower is entitled to borrow within a flexible range of amounts. The refund period of the loan can also vary from anywhere between 1 and 20 years usually. This however depends on the amount of finance the borrower requires, and his or her credit history. The finance provider will be hugely concerned in the creditworthiness of the borrower due to the lack of security. The lender has to solely depend on the credit score and business plan of the borrower for lending purposes.
The Impact Of Credit Scores
Unsecured business finance carries a higher rate of interest as compared to other sources of finance. Thus it becomes imperative for the borrower to be aware of his credit score, which he or she can use to get good rates. There are a number of companies that can ascertain the credit worthiness of the business and the borrower can submit this credit report.
FICO score reveals the credit worthiness of the borrower. The FICO score can range from 365 to 850. This score evaluates a borrower's complete credit balances, credit history, and public records. Usually, a credit score of 680 and above is believed to be a good score. A good credit score ensures that the borrower can expect a positive response from the lender. Businesses with bad credit history or poor credit score can also request for an unsecured business finance loan but it will be very important for them to work hard on their business plan, to make it more impressive.
Different options of Unsecured Business Finance
UK finance market offers a large number of unsecured business finance options to borrowers. Unsecured business finance providers, such as banks, financial institutions and online lenders, come up with a variety of finance packages, each with distinct set of terms and clauses.
A borrower can either obtain finance at fixed or variable rate of interest. Fixed interest rate indicates that interest rate continues to be steady throughout the finance period. While a variable interest rate means that the interest rate will fluctuate with the variation in the market interest rate.
Advantages of Unsecured Business Finance
The advantage of taking unsecured business loan is that it makes it easy for the borrowers by providing them with the option of flexible monthly payments. Though this would depend to a a large extent depend on the lender's policy. A business may make huge profits one month and big losses next month. Thus, there is uncertainty of proceeds in business. The provision of flexible repayment gives the entrepreneur the flexibility to pay more when he earns good profits and pay less or do not pay any payment when he undergoes losses during some period.
An organization or a company can greatly enhance their chances of procuring unsecured business loans by working on the business plan. It is essential for the borrowers to formulate a business plan if they want finance to begin or to further expand the business.
How to Procure Unsecure Business Finance
For the procurement of unsecured business finance it is important to provide industry specific information in the business plan. This will enable the lender to have complete in-depth information about the business that you would like to start or how your current business is performing. And above all, it will help you to ascertain what market trends would be affecting the business. Apart from providing these details, the borrower must also discuss about their management team and their proficiency and capability in a number of fields.
The quality of the business plan and its presentation is of paramount importance. It is one of the main documents that help the lenders to determine the strength and future of your business. A borrower's business plans go a long way in building trust and belief in the mind of the lender.
One can consider platforms such as Venture Giant to get business finance as well. Simply submit your business proposal and be visible to a huge list of active angel investors. Venture Giant connects active angel investors with entrepreneurs who seek investment capital and business funding to start up new ventures or expand existing businesses.