The Secrets of Unsecured Business Loans for Bad Credit Borrowers
October 12, 2018 by BlueSky Capital Funding
Getting enough funding to support your business is not only important but it’s also sometimes difficult. This is especially true for business owners with less than perfect credit, as most of today’s lenders are apprehensive about having out money to applicants with poor credit scores. Since adequate capital can help pay for property expansions, inventory, increased staff, equipment, and necessary office supplies, it’s vital to consider all of your financing options.
Monetary support is most commonly needed by start-ups and expanding businesses, but companies that have been operating for a long time often need funding as well. While some businesses are owned by individuals with deep pockets, not all ventures are backed by that same advantage. There comes a time in the life of every company when financial assistance is required to stay afloat. That’s where unsecured business loans come into play. Unsecured business loans, especially those offered to companies with bad credit, can provide the necessary boost needed to keep things on an even keel.
Since most businesses are owned and operated by people with limited resources, many banks and lenders offer loans and lines of credit to those who qualify. However, traditional bank loans are often difficult to get, requiring mountains of supporting documentation and even detailed business plans, earnings statements, or tax returns to prove the financial need and responsibility of the company requesting assistance. While traditional banks loans have their merits, they’re usually secured instead of unsecured and that’s where the majority of problems arise.
What Is an Unsecured Loan?
Unlike secured business loans, unsecured business loans require no collateral or pledged property to obtain capital. This not only keeps your valuable assets better protected, but it can also mean easier approvals and relatively flexible repayment options. Unsecured loans are frequently given to individuals and businesses with fair credit, but the terms of the loan can be somewhat more difficult to manage.
For example, secured business loans offer lower interest rates because of the collateral backing, which unsecured business loans have higher interest rates because of the lack of collateral backing. So, although you may not have to put up your property as a promise to repay the loan, you will have to make up for that in the form of an increased APR. Luckily, the interest rate gap is not too outstanding, and it usually depends on the condition of your credit when you apply for the loan.
Furthermore, secured business loans often have a variable APR that can change at any time throughout the contract. In fact, some banks and lenders have the right not to inform you of the change until it takes place, making it difficult to manage a budget. However, while unsecured business loans have higher APRs, that rate is not fixed either, but the repayment terms are static for the life of the contract. So, you can define the installments, but you have to stick with it until the loan is paid off – higher interest and all.
How to Qualify for an Unsecured Business Loan
The reason why unsecured business loans are set up that way because they’re often given out to businesses and individuals with bad credit. This makes banks and lenders nervous, and thus they must compensate for their potential losses somehow. Still, unsecured business loans are a legitimate way to get fast financing even in a financial pinch. Plus, they require some special qualifications of their own.
It may be easier to get the money you need by applying through a brokerage service. Many lenders are connected to a network of creditors who regularly approve unsecured business loan applications that feature a less than perfect credit report. It’s important, however, that you create a structured plan to repay the money you borrowed, or else you’ll only add to the bad marks on your credit profile and decrease your creditworthiness.
Since an unsecured loan is defined as a line of revolving credit that’s similar to a credit card, interest rates are not ever fixed. On the bright side, a revolving line of credit can work wonders on a poor credit report. If used responsibly, unsecured business loans can improve your credit scores quickly and make it easier to get approved for other types of financing. In the meantime, unsecured loans are the best place to start for individuals and businesses with bad credit.
To ensure you’ll qualify for an unsecured business loan, be sure to do the following 5 things:
- Pay all your bills on time.
On-time bill payment is one of the quickest and easiest ways to boost your credit scores and make it easier to get a loan – unsecured or otherwise. In fact, your payment history on bills account for nearly 30% of your total credit score. If you’re taking out a loan to help pay for those bills, be sure to apply before the accountholder reports delinquent activity to the credit bureaus.
- Refrain from applying for numerous lines of new credit.
Each time you apply for financing, a hard inquiry is put on your credit report. Every inquiry that appears on your report reduces your scores by as much as 10 points. If you rack up 6 or more hard inquiries over the course of just 6 months, your credit scores can drop dramatically.
That’s why applying for an unsecured business loan through a broker is a wise strategy. Reputable brokers can get your application in front of numerous lenders without causing several inquiries to get posted on your report. While there is such a thing as “rate shopping”
which counts multiple applications for the same thing as one inquiry, it’s better to be safe than sorry.
In addition, the number of hard inquiries on your credit report accounts for 10% of your overall scores. A section at the bottom of your report called “Credit Inquiries” will list these out for underwriters to see. So, while lenders offering unsecured business loans may accept your application even when you have bad credit, you may get denied simply because your credit report makes you look too desperate for money.
- Check your credit report often.
You may feel as though you know all there is to know about your credit report, but that doesn’t negate the fact that checking it often can help it improve. More than 45% of all U.S. citizens are in denial about the prevalence and possibility of identity theft. However, more than 10 million Americans were the victim of identity theft in 2017 alone. Checking your credit report often can help put a stop to this and can reduce the amount of damage that perpetrators do to your credit scores through their unscrupulous activities.
Cases of fraud costed American businesses billions of dollars last year, and new records are being set for 2018. Unfortunately, identity theft costs more than just money – it can cost you an approval on a secured or even unsecure loan application. With so many free services that allow consumers and businesses to monitor their credit reports, it’s a surprise that more people don’t enroll to ensure their personal information isn’t being tampered with.
When most people think of identity theft, they think of big numbers. And while that may be true for many cases, identity theft can hack away at a person’s credit report in small doses, making it difficult to spot unless the credit report is watched closely. By keeping an eye on your credit report and looking at it at least once per month, you can decrease your chances of becoming a victim while also watching as your credit scores increase through financial responsibility.
- Have the negative items removed by a professional.
Finding out that you’ve been the victim of identity theft can be devastating. It can make you feel angry and violated, as 45% of victims reported in the most recent poll documented by FICO. If identity theft produces negative marks on your otherwise pristine credit report, it can drop your scores significantly and make it extremely hard to get approved for financing. For those with already struggling finances, identity theft can ruin your life.
Identity fraud accounts for a large portion of the negative marks found on modern-day credit reports. However, it’s not the only reason why credit scores decrease. Either way, having some help to remove those negative items from your credit report can both help your scores and make you more likely to get approved for loans.
Professional credit repair companies offer services to businesses and individuals who are struggling to improve their creditworthiness. And while their services aren’t free, the investment can position you to obtain great amounts of financial assistance. By removing inquiries, identity theft footprints, collections, bankruptcies, and other blemishes, your credit improves almost instantly. In fact, some credit repair companies even dispute the information on a credit report with creditors and FICO until they’re removed completely.
- Invest in a shelf corporation.
If all else fails, you can always purchase an aged shelf corporation from a reputable dealer. Aged shelf corporations are pre-made companies that were legally established but never used, and they can serve as a legitimate boost to your business’s credit score. Just be sure to have your credit report analyzed first, because not all aged shelf corporations are the same.
Note as well that a person or business with poor credit may not benefit as much from buying an aged shelf corporation as someone with fair or good credit. Therefore, it’s best to work towards improving your credit scores before investing in something like that. Only buy a shelf corp once you’ve gone through the motions of improving your credit report as much as possible. Once done, the acquisition of an aged shelf corporation can boost your scored tremendously and help you get approved for a secured loan with a great interest rate or an unsecured loan with a higher balance.
5 Helpful Tips to Find the Best Unsecured Business Loan Lenders
The right lenders are out there; they’re looking for interested individuals and businesses who want a substantial form of financial assistance but who have every intention on paying it back in a timely manner. If that’s you, then don’t wait to apply because many creditors can only approve a certain number of loan applications per year.
To find the best lenders, following these 5 simple principles:
- Look for banks and lenders who do business in the same geographical location as you. These lenders are usually more willing to approval local applicants than those who apply from different cities or states.
- Apply with lenders that offer more unsecured business loans than anything else. Those creditors tend to be more understanding about the pitfalls of running a business, not to mention more sensitive to companies with less than perfect credit.
- Find out what each lender looks for in an applicant before requesting money. If you know what kind of borrowers they like to approve, you can work on those things to make yourself more attractive to their underwriting team.
- Don’t just apply with lenders from big name corporations. Some of the smaller creditors are more eager to approve applicants because they wish to grow their own business. On top of that, smaller lenders sometimes offer unsecured business loans with better terms and lower interest rates, so they can beat the competition.
- Only apply when you are confident that your request will be approved. Racking up hard inquiries in a search for financing can make the process even harder in the long-run.
Getting the money your business needs doesn’t have to be a difficult process when you know and understand the secrets of financing. The steps are elementary: respect the terms of an unsecured business loan, work towards improving your credit, apply with the right lenders, and refrain from submitting too many applications all at once. Even if you have bad credit, it’s still possible for you to obtain the financial assistance you require to keep your business afloat.