As the name suggests, unsecured loans (also known as unsecured loans) do not require collateral in any form; on the contrary, borrowers are valued based on factors such as your business credit score and the strength of cash flow. Because lenders take greater risks in the absence of collateral guarantees, these loans often have a slightly higher interest rate, requiring a replacement in the form of a guarantee or personal lien – or all of the above.
For what purposes are unsecured loans generally used?
Common uses for unsecured loans include:
- Funding business expansion activities: Unsecured loans can be used to finance various business growth activities in various industries dari ranging from renovation and expansion projects to restaurant owners, to the establishment of new branches or acquiring local clinics in other areas for health practitioners.
- Preparing for seasonal demand: flexible financing solutions, such as unsecured credit limits can be a useful tool for balancing your cash flow both in the busy and quiet sales season.
- Utilizing Opportunities that Only Appear in a Specific Time: External financing can allow small businesses to take advantage of certain business opportunities that emerge for a moment — something that you sometimes have to miss, such as taking advantage of a discount on procurement items in a limited time or securing a retail store location strategic one.
- Covering unforeseen costs: Equipment damage, late payments, facility usability issues – this can happen from time to time, but the last thing you won’t want to happen is this makes your business operations delayed longer than it should or or has an impact bad on your cash flow. With external funding, you will get the funds needed to improve the situation on time.
What kinds of unsecured loans exist?
A credit line, also known as a revolving credit that gives borrowers access to a number of capital with a ceiling that has been agreed in advance. Think of this as a credit card; a loan facility where you can withdraw funds whenever needed, and interest is only charged according to the amount withdrawn. When the amount of funds withdrawn has been paid, your credit limit will return to normal.
This is the most suitable solution to meet short-term financial needs, such as paying employee salaries or paying wages, seasonal expenses or to cover the cash flow gap.
Merchant cash advance
An advance cash merchant (MCA) – sometimes referred to as a loan for down payment – is determined based on your credit card transaction history. Through partner providers, your needs are paid in advance, which will be repaid through sharing the percentage of daily or weekly sales that are deducted directly from your credit card.
Suitable for business with:
- The volume of consumer payments via a large credit card. Examples include restaurants and retailers.
- New businesses that do not yet have a strong credit score: With MCA, lenders place more emphasis on the volume of consumer payments via credit cards in your store, and tend not to care too much about the personal credit score or the business of the borrower.
- Seasonal fluctuations: Because payments are based on the volume of transactions of consumers and your business, so you don’t need to make regular payments, but instead can pay lower amounts during the period of the break or the business is quiet.
Short-term loans are financing options that will be repaid within six months. It is easier to meet short-term filing requirements compared to long-term loans, offering quick access to funding and usually used to meet urgent financing needs — such as emergency repairs or recruiting temporary employees (or contract workers). Examples of short-term loans include MCAs, credit lines and invoice financing.
Tips to help you prepare a loan application without collateral
Increase your business and personal credit score
In unsecured business loans, the giver takes additional risks in the absence of collateral – so they need to ensure that you have a solid credit history, and can be trusted to pay off payments consistently and on time. The better your personal and business credit score, the more likely you are to get an unsecured loan with the terms of a profitable agreement. Here are some tips to help you.
The better your personal and business credit score, the more likely you are to get an unsecured loan with the terms of a profitable agreement. Here are some tips to help you.
- Pay your bills on time: Consistent and timely pay is simple, but this is a basic step to get good credit scores. Make sure you don’t forget to settle bills, even when you make a big purchase – like buying a car or property – and need to collect large amounts of cash.
- Avoid unnecessary credit applications: There are two types of checks in loan applications: soft pull inquiries (light checks), and hard pull inquiries (thorough checks). The first occurs when an individual or company checks your credit as part of a background check, while the second occurs when a financial institution checks your credit as part of a loan decision. Hard pull inquiries will be registered on your business credit report that is integrated in the central bank system, and affects your credit score for future loan applications. Although soft pull check does not have a direct impact on your credit score, checks for this type will be recorded in files / documents in the database. Thus, you need to limit the number of requests to be submitted, because of course you do not want to later meet potential lenders with a history of being irresponsible borrowers or someone who is in an alarming financial situation.
To increase your business credit score, you must:
- Check your credit report regularly: Check your credit report periodically, and make sure to report the errors you encounter — even if there are minor mistakes, such as miscalculations can have an impact on your credit score. If you need help with this section, you can consider signing up for a credit monitoring service. This service will monitor your credit report, and notify you of any changes or potential fraud.
- Report a good payment track record: Some vendors can report credit information to the bureau, while others do not. It’s a good idea to work with vendors who always report their payments — you can verify this by asking their department that deals with accounts payable — but if they don’t, you can add a trade relationship reference with them to your credit report through a credit reporting agency.
Where can my business get a loan without collateral?
Traditional lenders usually have strict loan criteria — such as having a minimum operational history of two to three years, or an annual income of at least Rp 2,000,000,000. This requirement makes it difficult for small businesses and startups seeking external funding.
But traditional banks and lenders are not the only available option. Therefore the online loan platform offers greater flexibility, with a simplified process, and faster access to funding suitable for the needs of small business owners.