9 Ways To Empower Business Growth Through Unsecured Working Capital Loans
Running a business is exciting but the journey can feel daunting. The hurdle of effectively managing cashflow while trying to grow is no exception. Whether you’re a big corporation or a small business, there’s always a need for additional funds. Generally speaking, this is where working capital financing becomes particularly useful.
Working capital provides businesses with quick access to cash and the discretion to use the funds how and when needed. Finding the right working capital loan for your business depends on various factors. Your specific industry, seasonal revenue cycles and situation will play a role, as well as the different lending options available. For shorter term needs, lines of credit, invoice financing or even credit cards may be suitable. If you have longer time horizons, SBA financing or conventional loans can provide the security and an extended repayment schedule.
Let this blog be your guide to perhaps the most commonly used working capital loan which provides businesses with the flexibility, stability and predictability needed to scale operations: unsecured working capital loans.
What Are Unsecured Working Capital Loans?
Unsecured working capital loans provide businesses with convenient access to a lumpsum of cash to cover day-to-day expenses or invest in timely growth initiatives. Unlike secured financing that requires collateral, unsecured loans are not backed by any specific business asset and lenders rely on the borrower’s creditworthiness and ability to repay the loan as part of the underwriting process.
Why Are They Equipped With Shorter Terms?
These loans generally have shorter repayment periods because they are intended to cover immediate needs as opposed to fixed assets which are used for longer term needs, such as real estate purchases. Unsecured working capital loans are usually faster to underwrite because of the reduced complexity and lack of collateral, creating a more streamlined experience for borrowers in need of quick funding. In addition, lenders will typically structure these types of loans under an accelerated payment schedule as a result of not having business assets to recover if the borrower defaults.
When Should You Consider Unsecured Working Capital?
You can determine your available working capital by subtracting debts owed by the assets needed to keep your business running smoothly, such as cash, inventory, accounts receivable and prepaid expenses. If there is a short fall, unsecured working capital might be a good option to address cashflow issues, especially if you need quick access to funds and are not in a position to risk losing assets to secure the loan. Keep in mind, the repayment period for unsecured working capital loans is usually one to two years, and interest rates are typically higher than conventional bank loans due to the increased risk of the borrower not pledging its business assets.
How Can Unsecured Working Capital Loans Help Your Business Grow?
Despite sometimes being overlooked due to a focus on immediate cashflow gaps, unsecured working capital loans can be an extremely powerful tool that provides businesses with the necessary financial cushion to proactively expand operations. This type of short term funding can be applied to investing in new product development, equipment upgrades or marketing initiatives. All of which are important components of building long term sustainability and increasing profitability in today’s increasingly volatile and competitive market.
Here are nine ways you can use unsecured working capital loans to empower your business and boost your growth.
1. Purchase Inventory & Equipment – With an unsecured working capital loan, you can purchase additional inventory and better equipment to scale your business. As long as you have enough demand from your clients, having more inventory to sell or the right equipment to be more efficient could be a gamechanger for your business.
2. Upgrade Your Technology – Business technology keeps evolving, and to remain competitive, your business must have the latest technology. An unsecured working capital loan can help you invest in the latest and greatest software and training to compete more effectively. It can also give you the insights you need to pivot your growth strategies as you begin to scale.
3. Expand Your Business – If you plan to expand your business, you’re probably going to need additional funds. Unsecured working capital loans are an excellent way to fund expansion projects, such as launching a new product, offering new services or reaching a new target market without sacrificing your current business operations.
4. Hire & Incentivize Staff – Hiring employees is expensive, and it’s challenging to find the right people. An unsecured working capital loan can help you hire additional staff or increase payroll budget through sales incentives, both of which are critical to ensuring growth.
5. Maintain Control & Ownership – As mentioned earlier, unsecured working capital loans do not require collateral, meaning business owners can maintain control and ownership of their assets. This strategy empowers business owners to use assets how they see fit and reduces the risk of losing business assets in the event of default.
6. Improve Your Credit Score – These types of loans can help business owners improve their credit scores by providing a means for them to demonstrate their ability to manage credit responsibly and make timely payments. By reducing your credit utilization ratio and increasing your available credit, it will improve your creditworthiness in the eyes of lenders when it comes time to secure additional financing down the road.
7. Consolidate Your Debt – If you have outstanding liabilities, an unsecured working capital loan can help you consolidate your debt, simplify your payments, and lower your interest rates. More efficient and affordable debt can help free up resources for expansion or investment in new opportunities.
8. Launch Marketing Initiatives – Marketing campaigns can be expensive, but they are essential to promoting your business and attracting new customers. With the right marketing resources, an unsecured working capital loan can provide you with the funds needed to launch a successful marketing campaign, redesign your website or invest in SEO paid advertising.
9. Take Advantage Of Business Opportunities – Sometimes you come across an exceptional opportunity that could benefit your business, but you’re short on cash. Whether you’re the buyer seeking limited-time discounts from a supplier or you’re wanting to attract new business by offering discounts on your product, an unsecured working capital can help you seize the opportunity.
How To Get An Unsecured Working Capital Loan
The process of getting a working capital loan depends largely on the type of loan and the lender. However, there are a handful of steps you’re likely to encounter when applying for an unsecured working capital loan.
Step #1 – Start by assessing your borrowing needs. Determine the amount you can comfortably afford to repay each month and establish a clear plan for how and when you will use the funds.
Step #2 – Before you apply for a loan, it’s important to check your personal and business credit scores. This will give you an idea of your chances of getting approved. Generally, a minimum FICO score of 550 is required.
Step #3 – Once you have determined how much you need to borrow and the likelihood of getting approved, it’s time to research lenders. Look for lenders that offer loan amounts and qualification requirements that align with your needs. Compare them based on repayment terms, fees, and customer reviews.
Step #4 – Collect all the necessary documentation. Most lenders will ask for information on any existing business debts, as well as at least three months of recent bank statements. You may also be required to provide a detailed business plan and/or business financials.
Step #5 – Engage in conversations with potential lenders. The specific procedures may vary, but most lenders will reach out to you via phone or email to discuss your financing goals and guide you through the formal application process.
Unsecured working capital loans are an excellent way for small businesses to get quick access to cash and continue to grow without restricting cashflow. Whether you need to purchase inventory or equipment, upgrade your technology, or expand your products, there are many ways to leverage this type of funding to empower your business and keep it moving forward.
By taking advantage of these financing options, small businesses can achieve long term goals through short term financing solutions while managing cashflow effectively.
