For those who have collateral to pledge for a small business loan, startup funding is usually not a problem. If you do not have real estate or equipment that can serve as a secondary payment, lenders will be hesitant to approve your application. Fortunately, unsecured lines of credit are easier to obtain so you can pursue your dreams of proprietorship.
Where to Go for Unsecured Credit
Thanks to modern lending policies, there are many financial institutions that offer unsecured loans and credit lines. In some situations, you might benefit from working with a lender who specializes in this area. As a matter of fact, you can still qualify for unsecured credit through the U.S. Small Business Administration, also known as a working capital loan. In this case, approval is based on your current assets and liabilities rather than long-term revenue and expenses.
What You Need to Apply
Like other financial resources, unsecured lines of credit require verification. If you are planning to submit an application, first gather the following information to share with your lender.
- Cash flow statements
To convince a lender that you can afford payments, a consistent cash flow is a must. Income statements and balance sheets are ideal for established businesses, but a realistic projection will suffice for a startup.
- Payable and receivable accounts
AR and AP statements are the easiest way to prove that you are responsible with your finances. The primary goal of lenders is to verify that payables and receivables are on a schedule and processing on time.
- Credit reports
Request a copy of your credit report to assess your score. This will help you identify any judgments or debts that have a negative effect on your score.
- Tax returns
Financial strength can also be determined by providing a copy of your most recent tax return. In terms of documentation, this is a comprehensive summary of your income and assets that reflects the long-term performance of your business.
- Business plan
A solid business plan is the final item you will need to make a lender feel confident about your financial circumstances. This is especially true for startups and business owners that are planning to upgrade.
Understanding Interest Rates and Terms
Above all else, remember that unsecured lines of credit vary depending on your personal and professional resources. Credit limits, interest rates and loan terms are carefully calculated to avoid issues with repayment. All you have to do is stay organized and find a reliable lender.