Do you need money for your business? There are a lot of reasons why you may need a quick injection of cash. It is fuel to hit the ground running, but there are circumstances when your cash is blocked, like your accounts receivables are yet to be cleared.
Even though it is just a small sum of money, borrowing money for a business is not as easy as borrowing for emergencies. A business loan in Ireland involves considerable risk and thereby carries a higher interest rate than an emergency loan.
A lender may ask you to put down collateral or arrange a guarantor if you need money for business expenses. You will likely consider an alternative if you do not need a large sum of money.
Further, it becomes more critical when you cannot wait to arrange a guarantor. You will likely want a loan without collateral if you need a small sum of money.
Thankfully, there are a couple of lenders that lend money without the requirement of collateral and guarantee. These loans are called collateral-free business loans.
What are collateral-free business loans?
Collateral-free business loans are known as unsecured business loans as they do not require collateral. It means you do not have a chance of losing a valuable asset you put down in case you make a default.
Unsecured business loans are generally small loans required to be paid off in a period of a couple of months. It depends on a lender how much money they are willing to loan you.
As you do not have collateral to lose in case you make a default, it does not mean that the lender does not have any way to get money back from you.
They have the right to transfer your account to a debt collection agency. They can sue you if you still do not make payments on time. This will affect your business credit rating and affect your reputation as well.
Your suppliers will hesitate to supply you with the material on credit.
These quick loans are processed without further ado. You just need to fill in the form online. Then a lender will evaluate your business revenues, needs, business credit score, in some cases, your personal credit rating as well to determine your affordability.
This process is fast, though it takes a bit longer time than an emergency loan. If everything goes smoothly, you will straightaway get money in your bank account.
Who is eligible for getting business loans without collateral?
Because you do not need to put down collateral, a lender would seek something else to offset the risk of loaning you money. Therefore, you must need to prove a strong trading position.
A lender will likely turn you down if they suspect that your business struggles for cash more often than not. On top of that, you need a decent credit rating. Do not forget that your business credit report will be taken into account if you have a firm or company.
Profitability is another factor that accounts for deciding on your affordability. If you have a high turnover and have been able to maintain it steady, you are more likely to get the nod.
A lender will also see whether you have enough resources to meet other expenses should anything go wrong. To know this, a lender will not just be limited to your company’s performance but also track the past record of a director.
Regardless of how strong the financial situation your business holds, these loans are going to be expensive. It is always recommended that you do proper research before opting for a private lender.
Various money lenders in Ireland offer these loans, but they all charge different interest rates. Do a comparative analysis to choose a lender that works best for you.
Are unsecured business loans actually unsecured?
A lender will not ask you to put down collateral, but the loan may not be wholly unsecured. For instance, a lender will collect payments from your debtors if you borrow money using invoice factoring.
Here invoices your hand to your lender may serve as the purpose of collateral as 70 to 80% of the value is lent to you. If your customers make a default, the lender reserves the right to turn to you to get their money back.
Likewise, it will be considered collateral if you have borrowed money as you need equipment. A lender can liquidate the equipment when you make a default. If it does not help release the real money, you will be liable to pay them back.
Can you get unsecured business loans for a start-up?
As a start-up, it is going to be very difficult for you to get a business loan. This is because your start-up does not have a history showing the likelihood of your business’s success.
A lender would like to get their money back, and if you are unable to prove that, no chances exist. A few lenders could lend you on the grounds of a business plan, but the interest rates will likely be outrageously high.
Try to avoid taking out a loan to fund a start-up, as this will be very expensive.
To sum up
Collateral-free business loans are small loans, and they are generally available for established businesses. Your business must have a good credit score to qualify for these loans.
In some cases, a lender may check your credit report too. Make sure it is not bad, either. These loans can be expensive, so do proper research to assess your affordability.
Hudson is a graduate of banking and finance and works as a financial consultant at MyLoansBoat. He has a professional qualification to counsel people about money management. At MyLoansBoat, his key duties include shortlisting applications of borrowers and counseling them about credit score improvement, building an emergency cushion, retirement funds, and getting rid of debt. He is an ardent reader of finance books and uses the gained knowledge to help people with their finances. He also writes for the company’s blog on various topics like budgeting, investing, saving, debt management, joint finances, and the like. His aim is to dedicate his life to helping people have a debt-free life.
