How to increase your chances of qualifying for an unsecured business loan?

How to increase your chances of qualifying for an unsecured business loan?

Published on 2022-08-29

Category: Small Business Owners, Unsecured Loans

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Cash flow is a problem for a large number of Australian businesses today - largely because of late payments on invoices. To pay vendors or buy equipment, many entrepreneursrely onbusiness loans from banks. However, these often require collateral and approval can take weeks. An unsecured business loan can be an excellent alternative for short-term needs.

What is an unsecured business loan?

An unsecured business loan does not require collateral. Lenders will assess your credit score and business history to determine if you qualify. However, unsecured loans represent a higher risk for lenders. They cannot recover their dues from any asset in case of non-payment. This is why Australian banks generally place a lot of emphasis on credit score. However, non-bank lenders are much more flexible and are likely to fund you, provided you meet a few key requirements. 

How to increase your chances of qualifying for an unsecured business loan?

Traditional lenders in Australia require documentation like financial statements, bank statements, tax returns, and a business plan for how you intend to utilise the funding you seek. A well-written business plan can increase your odds of approval – even if you had a poor credit score or outstanding tax dues. This is because it allows lenders to objectively analyse the risk against revenue potential.  However, each has its own credit review process which can take anywhere between 2 weeks to 2 months to complete. For the average small business, this can be impracticable. This is where non-bank lenders come to your rescue.

How to compare different options and identify the right unsecured business loan?

Unsecured business loans invariably come with higher interest rates and lower borrowing limits. However, they allow you to meet immediate business needs without affecting cash flow. The key points you need to compare include:

Application fees and Repayments

Most traditional lenders charge an upfront application and/or origination fee, prepayment charges or annual service fees which can add to the total cost of the loan. On the other hand, non-bank lenders only charge an origination fee at the time of application. So while the origination fee is standard across providers, the other charges are certainly negotiable. Moreover, if business is slow, you can even defer repayments for the first month with some lenders. This can come in handy during non-peak season.

Speed and Funding amount

Given the risk involved, the turnaround time for unsecured business loans is considerably higher with banks. Depending on the time of day, you can expect a response from non-bank lenders within one business day. The funding amount and term will be customisedbased on your business fundamentals and future revenue potential.

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