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Unsecured business loans: How Lenders Assess your Application?

 


One of the significant hurdles on your path to a business loan is getting approval from the lender. You have to convince the lender that you are capable of making good use of the loan and repaying on time. As easy as it might sound, the actual process is daunting. The lender will go through your financial statements and details, and assess multiple factors before approving your loan, especially if you are applying for unsecured business loans. We will get into all that in this blog, so let’s get going.  

Factors that Influence the Lender’s Approval for Unsecured Business Loans

Gaining approval from lenders can be stressful if you own a small business. Hopefully, the pointers below will give you some direction into what you can expect from a lender. Refer below to learn how lenders assess your application for unsecured business loans. 

Ability to Repay the Loan

The lender will assess your credit score and your company’s. The personal credit score defines your financial state and ability to repay the loans. Additionally, they will also assess the creditworthiness of your company. The lender will consider the existing loans of your business, the credit files, the history of loan payments (if any), and likewise. These details allow them to ascertain if you can afford another debt.  

Financial/Cash flow Strength

Unsecured business loans are generally low doc and are funded up to $300k, anything more than that requires financial documentation. Strong businesses can get up to $500k from certain private lenders. The terms and conditions vary in each case based on the financial strength, which is assessed by evaluating the cash flow of a business and ability to service the loan. If the monthly revenue is higher, it becomes easier to access a higher loan amount. 

Trading History

Your time in the industry is also something of interest to the lender. The minimum trading history requirement differs for each type of loan. For unsecured loans, the lender might want a business operating for more than six months. 

Industry

What industry is the business part of? This plays a major role in unsecured business loans. Every industry has its respective methods of revenue collection. Some businesses are seasonal, so their revenue might fluctuate off-season. The private lender will consider these factors before approving the unsecured business loan. 

Reasons that Cause a Loan Rejection

Your unsecured business loan might get a rejection based on the following reasons:

  • Poor credit score (personal and business)
  • New business
  • A riskier industry with a declining demand
  • Significant outstanding debt from a previous loan
  • Revenue inconsistencies
  • Inadequate trading history 

Conclusion

On a concluding note, when applying for unsecured business loans or any other business financing, going to a finance broker is wiser than approaching the lender directly. It gives you more loan options and minimizes the risk of rejection because finance brokers can connect you with multiple lenders ready to offer you favourable terms. If you want a reliable finance broker to facilitate your unsecured business loans, reach out to the experts at Broc Finance today! 

Source: https://www.brocfinance.com.au/blog/unsecured-business-loans-how-lenders-assess-your-application/

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