Do you need an unsecured business loan? Apply only after reading these tips for ensuring your application is successful.
The application process for an unsecured business loan is generally very fast. In most cases, you can complete the process in a matter of minutes using an online form.
However, this speed doesn’t mean that you don’t have to consider lender criteria. Most unsecured lenders will want to see certain proofs from you before they approve your application. If you fail to provide those proofs, the business loan application may fail.
This can be a problem as too many failed applications may show up on your credit report.
Thus, it’s important that you get it right the first time.
How can you secure an online business loan? Whether you are seeking funding for a new business idea or an existing business, understanding the application process is crucial. Apply using these tips so that you truly benefit from the speed of the application process.
Tip #1 – Check the Lender’s Criteria Before Applying
Each unsecured business loan vendor has its own criteria to consider before you apply. For example, most will ask you to provide a New Zealand Business Number (NZBN) as part of the process.
They may also ask for several documents required for the business loan application process, such as valid identification, financial statements, or several months of bank statements. Others may only lend to companies that have been in business for a certain number of years.
It’s important to keep these criteria in mind before applying. Ideally, you’ll confirm that you meet all of them before sending your business loan application. Before applying, make sure you understand your borrowing options, including the types of loans available and their requirements.
If you don’t, there’s a possibility that you’ll get a refusal.
And if that happens, you may make it harder to get a business loan with future applications.
Tip #1 – Assess Your Borrowing Needs
Before you apply for a business loan, take the time to carefully assess your borrowing needs. Start by determining exactly how much funding your business requires and what you intend to use it for—whether it’s to boost cash flow, purchase new equipment, or expand your existing business. Consider your current financial position, including any outstanding debts, and evaluate how additional borrowing will impact your business’s ability to pay back the loan.
It’s also important to review the total cost of borrowing, including the interest you’ll pay over the life of the loan. Make sure the business finance you’re seeking aligns with your actual needs and won’t put unnecessary strain on your cash flow. By thoroughly assessing your borrowing requirements, you can ensure that the business loan you choose is the right fit for your business and supports your long-term financial health.
Tip #2 – Create a Solid Business Plan
A strong business plan is the foundation of a successful business loan application. Whether you’re launching a new business or growing an existing one, a well-prepared business plan helps clarify your financial needs and business goals. Lenders want to see that you have a clear strategy for how you’ll use the borrowed funds and how you plan to repay the loan.
Your business plan should include a detailed cash flow forecast, up-to-date financial statements, and a breakdown of how the loan will be used to support your business objectives. Providing these details not only strengthens your loan application but also demonstrates to lenders that you understand your business’s financial position and have a plan for sustainable growth. For guidance, resources like business.govt.nz can help you develop a comprehensive business plan tailored to your needs.
Tip #3 – Read the Fine Print
When considering a business loan, it’s essential to go beyond the headline interest rates and carefully read the fine print. Every lender has different loan terms, and understanding these details can save your business from unexpected costs down the line. Pay close attention to the type of interest rates offered—whether they are fixed interest rates or variable—and consider which option best suits your business’s needs.
Be sure to check for any early repayment fees or penalties that may apply if you decide to pay off your loan ahead of schedule. Don’t hesitate to ask your lender for clarification on any terms you don’t fully understand. By thoroughly reviewing the loan terms and conditions, you can make an informed decision and avoid surprises that could impact your business’s cash flow and financial stability.
Tip #4 – Boost Your Credit Score
Your credit score is a key factor in determining both your eligibility for a business loan and the interest rate you’ll be offered. A higher credit score can help you secure a business loan with more favorable terms, while a lower score may result in higher interest rates or even a declined application.
To boost your credit score, focus on making all payments on time, reducing existing debt, and regularly checking your credit report for any errors that could be affecting your score. Taking these steps before submitting your business loan application shows lenders that you’re a responsible borrower and increases your chances of approval. Remember, a strong credit profile can make a significant difference in the cost and accessibility of business finance.
Tip #5 – Have a Co-Signer
If you’re a new business or have a limited credit history, having a co-signer can greatly improve your chances of getting approved for a business loan. A co-signer with a solid credit record provides additional security for the lender, making them more likely to approve your loan application.
It’s important to choose a co-signer who is financially stable and fully understands the responsibility they’re taking on. Both you and your co-signer will be equally responsible for repaying the loan, so open communication and trust are essential. With the right co-signer, you can access the business funding you need to grow your business, even if your own credit history is still developing.
Bonus Tip – Avoid Common Mistakes
Applying for a business loan can be a complex process, and avoiding common mistakes can make all the difference in securing the right funding for your business. One of the most frequent errors is submitting incomplete or inaccurate loan applications, which can lead to delays or rejections. Make sure you provide all required documents, such as financial statements, cash flow projections, and tax returns, to support your application.
Another common pitfall is failing to prepare realistic cash flow projections, which are crucial for demonstrating your ability to repay the loan. Additionally, avoid applying for multiple loans at once, as this can negatively impact your credit score and make lenders wary. By staying organized, providing accurate information, and understanding the loan terms, you can increase your chances of approval and secure a business loan that helps your business thrive.
Tip #2 – Read the Fine Print
On top of having their own criteria, each lender reacts to loan-related issues in different ways. Some may also have terms buried in fine print that you may not notice until later on.
Such was the case for one retail store.
The borrower has enjoyed rapid business growth over the course of 12 months. This caused some cash flow issues as the company tried to manage this growth.
They’d already taken out several loans with different lenders. However, they’d failed to fully read the fine print and didn’t realise how unfavourable the terms were.
With the help of an unsecured business loan, they consolidated those loans and achieved better terms. Reviewing the repayment amount and loan structure helped ensure they got the best deal.
Remember that it’s not just the business loan application process that you need to consider. You also need to know that the loan suits your circumstances before you apply. Failing to check the fine print could lead to you applying for a loan that doesn’t suit you. This could lead to financial issues later on.
Pay close attention to the type of interest rates offered—whether they are fixed interest rates or variable—and consider which option best suits your business’s needs. A fixed rate loan means the interest rate remains unchanged for a fixed term, providing certainty about your repayment amount over a set period.
Be sure to check for any early repayment fees or penalties that may apply if you decide to pay off your loan ahead of schedule. Early repayment fees are more common with fixed rate loans, so understanding these terms can help you secure the best deal.
Tip #3 – Boost Your Credit Score
Most lenders will examine your credit score as part of your business loan application. Lenders may also consider aspects of your personal life, such as your personal financial history, when assessing your application. They all have different tolerances in terms of what score they’ll accept. The key is that there’s usually a minimum that you need to meet unless you’re specifically applying for a bad credit loan.
A poor credit score can lead to your application getting refused.
If you know that you have a bad credit score, there are several actions that you can take to boost it. These include:
- Paying off as many debts as you can.
- Spending at least three months building up a track record of on-time repayments for existing loans.
- Avoiding applying for any types of credit prior to your business loan application.
- Checking your credit score and contesting any black marks that shouldn’t be on it.
- Keeping your credit card balance as low as you can.
The stronger your credit score, the more likely the approval.
Tip #4 – Have a Co-Signer
You may need quick access to funds and don’t have time to improve your credit score.
The good news is that you may still be able to get an unsecured business loan. Apply with a co-signer and you can improve lender confidence in your ability to make repayments.
A co-signer is a person who makes the loan application with you. They agree to make repayments on the loan should you default. This means the lender now has two people servicing the loan, which makes them more confident.
A good co-signer is somebody who has a strong credit history and who trusts you to make repayments. Many opt to rely on friends and family members for this. Of course, the co-signer needs to understand the risks before they get involved.
Tip #5 – Talk to Your Lender
Don’t think of lenders as faceless and unapproachable organisations. They’re willing to help you along with the application process. However, many business owners just don’t ask them any questions. Instead, they go right into the application process without having a good idea of if they’ll succeed.
Contact any lenders that you consider working with before applying. Create a list of important questions that you need answering and discuss any concerns you may have about the application process. Also, discuss any issues that you think may prevent your application from getting accepted. If you are applying through a traditional bank, arranging a meeting with a bank manager can help you better prepare for the business loan application process.
In many cases, the lender will be able to provide specific advice related to your circumstances. They may also be able to indicate if now is a good time for you to lodge your business loan application.
Apply Today With a Lender That You Can Trust
There are many benefits to unsecured business loans. The speed of the application process is perhaps the largest of them. You can complete your application in a matter of minutes. And most unsecured loan vendors will let you know if the application’s successful within a day or two.
However, that speed does not mean that you don’t have to meet certain criteria.
Do all of the above before you apply for an unsecured business loan. This ensures that you’re in the best possible position to benefit from the speed of the application process.
Unsecured Finance New Zealand can help you.
Check out our FAQ to answer many of the questions you may have about your application. You can also get in touch with our team at contact@unsecuredfinance.co.nz.
And when you’re ready, apply online for an unsecured business loan. The process only takes five minutes!
