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I am self employed and while my income has been good in the last few months, things were a bit tight before. I am keen to grow the business but have no security available. What options do I have to obtain a loan?
Responses
Hi Jonathan
It is good to hear your business is picking up, well done.
There are a couple of business finance options to help grow your business but it will depend on the type of business. If for example your business has regular invoices going out to your clients you might be able to apply for a debtor or invoice financing facility. This type of finance is where a lender will pay a certain percentage, say 80%, of the outstanding invoices to help you with your immediate cashflow.
Debtor and Invoicing Finance Lenders will then follow up your client to ensure they receive full payment and they will then pay you the original invoice amount, less the 80% they already paid you and their own fees and charges.
This is a great way to grow your business as you can generate cashflow and not have to wait the normal 30, 60 or 90 days for clients to pay you. These type of lenders do have a set criteria in the type of business they will lend to so it is best to contact them directly or a finance broker who has the experience to act on your behalf.
An experienced finance broker might also be able to identify some assets within your business (depending on the business) where a sale of leaseback could help you obtain funds to grow your business.
If your business falls outside the debtor or invoice finance criteria it is very difficult to obtain finance without security. What you could do is contact the bank where you have your business accounts and see if they would be prepared to help in the form of a loan or small overdraft.
Best of luck
Hi Jonathan,
I run seminars called Credit Ready the 4C's of Credit. Where I speak about the importance of Character, Collateral, Capacity and Conditions. The important things here is you have no security collateral. As a result the important thing is that you strengthen the other 3 C's.
For character, ensure your credit record is clear and look to get trade references from any suppliers that you may have. Also prepare for any application with at least 12 months of trading account statements. If these are a little lower than typical consider preparing 2 years.
Tax returns and full financials will also help.
For Capacity consider how any lending and its subsequent loan repayments might affect the cashflow of the business. Providing a detailed budget and cashflow projection can go a long way with your potential lender.
With Conditions; be ready to explain the cause of the recent tightness and how the conditions have changed.
With these 3 C's strengthened you should have several options including a personal loan, unsecured business loans or debtor finance against your invoices.
Hope this helps and best of luck in you business.
Awesome Albert
Hi Jonathan
For me to provide a comprehensive answer I need more information.
In general lending may be difficult without security, however not necessarily impossible.
There are however ways in which you can identify opportunities to increase efficiency of the business as well as cash flow solutions.
regards
Jennifer
Hi Jonathan,
There are a number of lenders around these days that can do unsecured business loans. Some will use more recent business cash flow financials to assess your ability to repay the loan.
Due to the nature of unsecured loans being classified as a higher risk lending option for the lender, the costs of these can be quite a lot more expensive than a normal consumer loan or secured business finance.
You would need to talk to a finance broker/lender to see if the option would suit your needs.
It would probably be worthwhile talking to your accountant as well to make sure that borrowing the money would help increase your income enough to make it a sound commercial decision.