Unsecured business loans are a good source for raising finance for a small business. It is one of the safest and quickest ways to fulfil financial requirements. Before opting for such a financing method there are some specific considerations that one has to keep in mind. The financier would like to make certain examinations before offering funds. It is important to follow the below-mentioned steps before filing a business loan application.
- The 20 per cent rule
As per this rule, any partner owning 20 per cent or more ownership in a small business is subjected to offer a personal guarantee while applying for a business loan. Such guarantees are assurance in case of any defaults. Many times the banks and the lenders prefer valuating the personal assets of the owners. The lenders also look for the credit scores of applicants while extending a loan.
- Understand application strength
When opting for an unsecured business loan it is important to build a good application form before presenting it to the lender. First of all, it is very important to know the credit score of partners owning 20 per cent or more shares in the business. All the concerned partners should discuss and open up their asset information clearly to other fellows. This is important because a weak credit score can affect the loan.
Secondly, the partners should discuss that is every owner is able to sign a personal guarantee while taking up the loan or not. Signing a personal guarantee straight away puts their personal assets at stake in case of any default while business loan repayment. The partners can also agree upon limited liabilities. This will help them to settle the adverse situation in a low-risk manner.
- Change ownership percentages
Well, there is another solution for covering the loan risk. The partners can decide and change their ownership percentages as required to get a loan. The process can be time-consuming and complicated but till will definitely ease the financing needs. For this step understand the exact policies issued by the lender. Look for the adjustments required to be made by each partner.
Once, the policies and adjustments have been worked out, the next step is to approach a lawyer and an accountant for professional guidance. It is advisable to take professional help if the owners do not understand the legalities of debt financing in detail.
After finishing and settling all the above requirements and formalities, the business owners can now apply for an unsecured business loan.
