In today’s finance guide we will be discussing the unsecured small business loans process. Loans of this type are designed specifically for small businesses as defined by their yearly revenue or number of employees. Typically business is considered a small business that makes less than $100,000 per year in revenue or has fewer than 500 employees. These loans are considered unsecured because they’re not backed by a specific asset but rather by the company’s credit standing and other factors. We will be discussing these factors in today’s article.
As mentioned above one of the primary factors in obtaining unsecured small business loans for your company is your company’s credit score. Business credit scores are different from personal credit scores and functional different scale as well. Although personal credit scores have scores between roughly 400 to 850, while a business credit score has a scale from 0 to 600. Your business does not naturally have a credit score at all and as such you must build your credit in order to have a good score. Typically this is to run your short term arrangements with suppliers through your business credit whenever possible. Once you have a reasonably good credit score and should not be too difficult to obtain a loan.
Another factor that plays heavily into your ability to get an unsecured loan is your company’s revenue to expense ratio. This is very much like the debt income ratio of an individual in that it is essentially a ratio of how much money goes out each month to how much money comes in. Certain loan types will require minimum thresholds for this ratio and you should discuss these details with any potential lenders. It may be necessary to make adjustments to your monthly expenses before you are able to the approved for a loan unsecured or otherwise, if you are not making enough revenue as compared to your expenses you have make these adjustments first.
Also important to your ability to get an unsecured small business loans is your business plan. Having a well-organized and thorough business plan shows potential lenders that you have a clear plan to maintain your profitability as well as demonstrating that you have done what is necessary to cut costs in run your company efficiently. The having an officially outlined plan is hard to judge how effective your company is functioning and this makes it less likely for lenders to lend money to you.