Personal Finance Blogs

To many business owners looking for working capital, an unsecured business loan sounds like an enticing offer. Indeed, the Internet is littered with ads, sites and plain old come-on’s for these types of loans. However, it is important to understand these offers for exactly what they are.First of all it is important to understand the common definition of “unsecured” in the context of a loan. A secured loan is typically one that has a lien or some type of legal encumbrance placed upon some type of hard assets possessed by the borrower. An example would be a car loan or a mortgage. The “security interest” for the lender is that if you do not pay, the lender will take your car or house. In this case, the lender has “legal recourse”, and can use the courts to either force repayment, or seize the secured assets ( car or house in our example) if the borrower cannot pay.In both these examples, the borrower has the loan secured against personal assets and the loan is made based off of personal credit and income. An unsecured loan by definition, does not have a lien placed on assets possessed by the applicant or borrower. The loan is made purely on the strength of the borrowers credit history and their verifiable income.In the context of business loans, many offers are advertised as “unsecured” purely because these types of loans or cash advances do not secure the loan against the PERSONAL assets of the business owner. Technically, then, this loan is unsecured. If the loan is truly unsecured against both the personal assets of the business owner, and the business itself, then the loan amount typically will be very low, generally under $7500 and usually much lower if the credit history has problems.However, many merchant cash advance lenders will advertise unregulated cash advances as “unsecured”. In actuality, these types of advances, which have no limit on the upward rate being charged, usually do have a security interest against the assets of the business, not the business owner. They accomplish this by filing a UCC(uniform commercial code) lien against the business. This means if the business does not pay the loan and the business is sold or liquidated, the merchant cash advance lender has a right to the proceeds to satisfy the unpaid before the business owner does.Such advances are usually made based on the future credit card receivables of the business and often come with strings attached, such as requiring the merchant to switch payment processors, buy equipment, and pay high upfront fees. The unregulated “cash advance” is really a sales tool to force further purchases or concessions by the owner in exchange for a high rate advance.In conclusion, if you are business owner looking for an unsecured business loan and the amount you are requesting is over $5000 with less than perfect credit, chances are you will not find it easily, if at all. However, there is a much more cost effective option for these business owners who are seeking quick working capital up to $500,000 at rates that are 50% less than a merchant cash advance with no upfront fees and no requirement to switch processors. To find out more about this new, cost effective business loan, click here.

It is quite often that a starting entrepreneur gets denied with an application for a loan. While others may be successful with their loans, they may also find themselves dealing with strings attached to the arrangement. In getting an application, business owners must realize that investors and banks operate under standard principles when lending money for business. Below are the basic steps that you should consider in getting that much needed loan for starting your business.Know the Reason for your Business LoanThis is especially important for any starting businessman. While most may think that this step already goes without saying, some borrowers tend to be confused on why they need the loan on the first place. Applicants should identify the intended purpose, whether it is for replenishing capital or for facility expansion and equipment upgrades.Know the amountBusiness owners need to be clear and very specific on both the reason for the loan and the reason for the amount specified on the application. Even existing business firms may not be able to fully address the questions on why and how much not until they start preparing their financial statements.Get expert adviceThose who are running a start-up business may benefit from the advice of experienced executives. If you are a small business owner, you may want to visit any local chapter of the SBDC or Small Business Development Center. This organization serves to assist any new and existing businesses. SCORE is another wonderful source for advice for any entrepreneur struggling with a loan application. This is a non-profit organization which mainly consists of volunteer retired business executives.Know your credit historyAny owner of a starting business which is less than 3 years old will be subjected to a credit history evaluation by the bank or investor. It is often in this area where banks find a reason for denying a loan application. Therefore, it is important that you get your credit history in order. Check for any disputes and discrepancies.Demonstrate credit worthinessWhen a bank or investor evaluates your credit, there are generally four areas considered upon making the full assessment. The bank analyzes the business owner’s capacity to repay the loan. It is important for any applicant to specify how and when the loan will be paid back in full. The collateral is another crucial factor. This acts as a security for banks and investors. This can be any form of property owned by the applicant or business. Collateral can also come in the form of a guarantee that someone else will pay the loan in the event that the applicant cannot. The bank also considers the owner’s personal investment into the business. This is basically the capital and the banks will strictly evaluate the amount and overall quality of the capital that the business owner can provide. The personal qualities of the loan applicant are also considered during credit analysis. While this may seem subjective for most, banks place value on the overall character of the applicant. Everything from personal background, educational experience and professional experience in the chosen industry are evaluated when applying for a financial investment.Know the economic conditionsThe conditions that may affect an investor’s decision include the overall economic climate during the time of application. Undeniably, banks will view tight economic conditions as a challenge for any loan applicant to be able to pay back the investment. Furthermore, periods of recession also mean that banks will have a tougher time in funding every loan application that comes their way.Review your borrowing optionsIt is best that you consider all the commercial banks available. While most are attracted to large national banks, regional institutions should warrant a priority spot in your prospective list. The chances of getting a loan are actually much higher when you got small commercial banks. Of course, there are other great options available. Business owners who are members of a local credit union can also consider meeting the loan officer in charge.Make a solid business planA good business plan is one of your best weapons against loan application denial. Financial institutions will most certainly require a business plan along with the loan application. The business plan should be extensive and include relevant information on past and present financial statements. It should also include a clear market analysis for the business as well as your overall experience in that industry. The value of the assets to be used as collateral should also be distinctly indicated.Being successful in your loan application requires transparency with all your relevant financial information. It requires a confident entrepreneur who has strategically planned out the business in all its key aspects.

Business owners with poor credit ratings may find it difficult to obtain a loan for business purposes, such as expansion or to invest in a new product. Because lenders focus primarily on personal credit scores for business loans, you need to focus your efforts on going to the right lender for a poor credit business loan.Poor credit business loans are available to business owners who would not otherwise qualify for a conventional business loan. Before applying for a lender, take a few important steps to increase your chances of getting a poor credit business loan.1. Write a sound business plan.Having a sound business plan is your biggest asset in obtaining a poor credit business loan. The plan should be completed and should represent your business in detail. Pay the closest attention to your business’ summary, which is stated at the beginning of the business plan. The summary is generally one to three pages in length, and details your business’ management experience, marketing efforts and goals, business goals, and other information about the business. If the lender likes what they see in this summary, they’ll read on.2. Rent, rather than purchase, business space.If you’re applying for a poor credit business loan, look for attractive business rental property that fits easily into your business’ budget. Lenders favor businesses that rent or plan to rent business space rather than purchase a building, especially for businesses that are in the early stages of development, and will often approve poor credit business loans provided space is rented rather than purchased. This is due to the fact that lenders prefer to see a business owner investing in assets that generate income for the business, such as inventory and equipment. Lenders also frown on expensive renovation costs to rental space if the business is a young or start-up business.3. Review your credit reports.Checking your credit reports from Experian, Equifax, and Transunion is an important start to the application process for a poor credit business loan. Your credit reports can cue you in on what the lender will see as soon as you apply for a poor credit business loan. When you obtain copies of your credit reports, review all information, including your name, address, phone number, and social security number to make sure that they’re all correct. Additionally, check your listing of creditors. If there are listings that you don’t recognize, report them to the credit bureau. Additionally, if there are listings that were turned over to a spouse after a divorce, for example, report those as well. The credit bureaus will contact the creditors with these disputes. Creditors are given a 30 day period to respond and verify that the debt is true, or if they are indeed errors, they are required to remove the listings from your reports. If no response is received after you file your dispu!te, the credit bureau is required by law to remove those listings from your reports. Demand that the credit bureau correct these mistakes promptly.If your credit report shows legitimate late payments or bankruptcies, include a letter with your poor credit business loan application, explaining the circumstances of these marks against you, and how the situation has changed for you. This can greatly reduce the impact of these negative listings. Be honest with the lender! Trying to conceal your past credit problems is the fastest way to get your poor credit business loan application discarded.4. Consider a small lender.Larger banks aren’t necessarily the best place to apply for a poor credit business loan, and in fact, can sometimes be the worst place to apply. Smaller banks and credit unions are often more inclined to finance businesses in their community, even those applying for a poor credit business loan, and their loan officers are more likely to give you individual attention and listen while you state your case. Each inquiry into your credit report generally reduces your credit scores by five points, so choose your lender carefully before applying for a poor credit business loan. Ask the lender to review your situation prior to pulling a credit report. If they feel that the proposal shows great potential, while being honest with them regarding your poor credit, and the lender feels that the loan could be approved, you’ve reached a safe point to move forward and allow them to request your credit report.Poor credit business loans can sometimes be difficult to obtain, so be resourceful on where you get your loan.A. Consider a home equity loan.For example, home equity loans can be used for business purposes. However, keep in mind that if the business fails, you may also be at risk of losing your home if payments are not made.B. Consider working with a specialty lender.Some lenders specialize in poor credit business loans for high-risk entrepreneurs. These loans usually have high interest rates, but can sometimes offer a provision for lowering the rate when the business shows positive cash flow and the borrower demonstrates the ability to pay the debt.C. Approach the Small Business Administration.The Small Business Administration (SBA) has a wide variety of loan programs to assist business owners and potential business owners. The SBA does not provide loans, but rather, guarantees a loan, reducing the lender’s risk of loaning you the money for the poor credit business loan. The SBA also maintains a list of business-friendly banks. For more information, contact your local SBA office, or visit sba.gov.