The figures say it all: UK small business is thriving, with more and more people quitting the day job in favour of launching their own ventures. From the ‘mum-economy’ to tech pioneers, small business has never looked so healthy.
The ongoing rise in startups and the strong growth of SMEs mean entrepreneurs are investing precious time and funds into realizing their vision.
Alongside this positive trend, business finance remains a bit of a murky area with lots of business owners putting off looking for funding because it seems complex and time consuming. Also traditional bank loans aren’t as available as they were before the economic crisis.
But there’s still hope. Thanks to the surge in entrepreneurship, alternative finance companies are filling the funding gap by providing accessible small business loans.
The gazelle-like pace and momentum we're experiencing in the small business world is not abating, rather it's increasing as more and more people seize the day and set about starting up a business of their own, taking control of their own destiny.
Emma Jones, founder of Enterprise Nation.
What are the pros and cons of unsecured business loans?
Let’s take a look at this type of loan before you go ahead and apply.
In contrast to a secured business loan, an unsecured loan doesn’t require company collateral as security. However, when applying for an unsecured loan, lenders may ask you provide a personal guarantee to give them assurance that they can recover the money from your personal funds if the business defaults.
What lenders accept as a guarantee can vary, but they may expect to use personal assets such as your home (if you own it) or valuables like jewellery. This can complicate things; some lenders would say the use of a personal guarantee makes it a secured loan, whereas others would say it’s still unsecured. It’s all a bit tricky so be sure to read the product details offered by each lender.
But we’ll stick with the term ‘unsecured loan’.
Another issue to consider: lenders don’t have the same level of security with unsecured loans as they would with a secured loan. So they tend to levy higher interest rates on unsecured loans. Although this kind of lending tends be an easier process for borrowers, it could turn out to be the more expensive option.
It can be baffling, but this is why doing the groundwork is so important in finding an arrangement that works for you.
Will my credit score affect my application?
The good news is that unsecured loans are ideal for startups and business owners without a long credit history. And when you apply, you won’t be expected to demonstrate a first-rate credit score. A negative score was once a real barrier to raising funds, but these days, specialist SME lenders tend to look at the bigger picture when evaluating applications.
As long as you can prove consistent performance and steady growth, and that you’re a limited company, sole trader or partnership, getting that influx of cash is very possible.
Don’t scatter-gun applications
A word of warning: try not to scatter-gun loan applications in the hope that one lender will accept. How could this impact you? Well, when viewing your credit profile, lenders can see all searches by other creditors. There’s nothing set in stone saying that this will affect your chances of approval, but lenders may see it as a sign of desperation. So focusing on one lender at a time could protect your reputation as a borrower.
What if I struggle to pay back the loan?
Struggling to make your regular payments on an unsecured loan could see your lender levying additional fees. Although responsible lenders like Fleximize will work with you to ensure you can afford the loan prior to approval.
Still unsure about unsecured?
If you’d like more information before making that crucial application, why not talk to one of our experienced relationship managers at Fleximize on 020 7100 0110? Or browse our services to find out more.