It is impossible to run a business without requiring a loan of some sort during the course of the business’ life. Business owners who are able—at any stage—to use business revenue rather than loans are few and fortunate. However, when the time comes to take out loans, most business owners prefer unsecured small business loans, rather than loans that place their personal or business assets at risk.

The initial state of starting a business is all about planning. Banks might approve personal loans, but will not approve unsecured small business loans for a business that does not yet exist. At this stage of the game, most business owners finance this research and business plan development with their own assets, or with unsecured small business loans from friends or family.

When it is time to start the business, banks are still very hesitant to lend to an unproved entity. Business owners are required to show substantial personal investment, responsible management of their own finances and very good credit histories to acquire any funding at all, but will almost certainly have to pledge personal and business assets as collateral until they have a record of accomplishment.

The early years of a business are a good time, however, to establish a line of credit to allow for fluctuations in cash flow and to make minor purchases. Whether a small business is able to obtain a secured or unsecured credit line will be determined by the initial evidence of the business’ stability and promise, as well as the owners’ personal finances.

Unsecured small business loans are appropriate and possible for the expansion and growth phase of business. Business owners should be able by then to show years of positive cash flow, steady sales, good management and to project an increase in revenue that will make it possible to repay small business unsecured loans.

To apply for an unsecured small business loan click here.

Before you apply for a business loan, there are several steps you should take to increase the likelihood that your business will be perceived as a good lending risk. Understanding the process lending officers use to evaluate loan applications will help.

Lending institutions are concerned above all else with their risk exposure; what are the chances they will lose money on you. Secondarily, they hope to make money by lending you money. Their criteria in making these determinations are based on what is known as “the four Cs of lending.”

The four Cs of lending

• Character: This C could also stand for credit, as lending institutions are concerned with the applicant’s credit history, prior delinquencies, credit utilization and debt-to-income ration. However, personal character is also a consideration. A prospective borrower with a criminal history, personal instability or shady associations will not be deemed a good lending risk.

• Capacity: Does the borrower show positive revenue that could support additional debt? Will the borrower’s projected revenue enable repayment of the loan? If the application is for a newer business with a limited record of accomplishment, lending officers will look more favorably on a franchisee’s applications if the franchise as a whole has a good record.

• Capital: What assets has the applicant accrued to date? Lending officers are most enthusiastic about cash assets, but also consider real estate, manufacturing or heavy equipment, inventory and accounts receivables retail or restaurant fixtures. In doing so, the monetary value they place on your assets will reflect a discounted market value because, with the exception of cash assets, they will have depreciated, and will cost the lender money to liquidate. Moreover, banks are in the business of making money from lending money, not from liquidating parking lots or used backhoes.

• Collateral: That applicants have assets is important to lenders; that applicants know they will lose their assets if they default on loans is even more important. Lending is based on incentives, and nothing incentivizes repayment like the anticipated pain of losing a business or family home. Lenders are not willing to shoulder all the risk themselves; borrowers must be willing to place their assets at risk, too.

Evaluate your own borrowing suitability with the same cool, objective judgment used by lending officers. Even if you do not plan to apply for a loan in the near future, use the interim period to prepare.

•    Clear any errors from your credit report and pay down as much as possible.
•    Minimize overhead and maximize accounts receivables.
•    Accrue assets.
•    Determine your personal level of risk adversity and which of your assets are the most suitable collateral.

If you have managed to keep your small business afloat through the first year—or even the first two years, congratulate yourself for having accomplished what roughly 40% of business owners cannot. By now, it is time to initiate your plans for growth, and you may need lines of credit for that. But, which is going to be better for you and your business—secured or unsecured lines of credit?

Each has benefits and drawbacks, and suits some situations better than others.

Unsecured lines of credit allow business owners to retain control of their assets. On the other hand, secured lines of credit put business—and usually, personal—assets on the line. Those assets can be real estate owned by the company or the individual(s) named as the borrowers. It take a strong stomach to agree to hand over the home you share with your family if the business falls on hard times, and is often the single condition that makes business owners choose unsecured lines of credit.

Other assets used as collateral for secured loans can include business equipment, inventory or accounts receivable.

Banks are in the business of making money by lending money. Consequently, when the lions share of the risk is borne by the borrower—as is the case with secured loans—banks typically charge lower interest rates; when borrowers choose unsecured lines of credit, they may face higher interest rates. How high is determined by personal and business credit histories and the degree of promise shown in their business plans and indicated by past performance.

Besides secured or unsecured lines of credit, there is another option: credit cards. Many business owners finance their businesses with personal or business credit cards; however, this option should be considered as a last resort because credit card rates are higher than that of secured or unsecured lines of credit, and the interest can break a business.

Another drawback to financing with credit cards is that, unlike more traditional secured or unsecured lines of credit, they have a variable interest rate that can be suddenly adjusted upward (but rarely downward), and their limits can be suddenly reduced.

Business owners and consumers are wise to obtain an unsecured line of credit before they need one. An unsecured line of credit benefits the borrower in myriad ways, but represents a level of risk for lenders that requires them to set a higher standard for lending than for most other loan products.

Anytime a lender approves an unsecured loan of any kind that isn’t tied to some kind of collateral, the lender takes a greater risk than with a home or business loan secured with real estate or other assets that a lender can seize should the borrower become unable to repay the loan.

However, an unsecured line of credit is typically used for expenditures related to intangibles or goods that rapidly lose value, placing the lender at a different level of risk. For this reason, it is imperative that a business owner or consumer acquire an unsecured line of credit before it is needed to resolve current financial issues that might disqualify them for a loan.

The ebb and flow of business expenses dictate that almost any business needs an unsecured line of credit to meet occasional expenses. Sometimes accounts payable exceed accounts receivable. Sometimes a necessary seasonal inventory increase will not realize a return for several months. For these and many other purposes, an unsecured line of credit can make the difference between a business’ failing, surviving or thriving.

The same applies to personal finance and the benefits of an unsecured line of credit. A tax bill is due in November, but a year-end bonus does not come until December. Proud parents have resources enough to give their children excellent educations, but withdrawing investments prematurely carries a penalty.

An unsecured line of credit is also an invaluable tool that enables the borrower to take advantage of time-limited opportunities. If, for instance, a business owner is awarded a sizeable government contract that would finance significant growth for the company, but fulfilling the contract will require personnel and equipment investments, an unsecured line of credit will make it possible.

A homebuyer who has a chance to buy a dream house at a great price would have to pass on the opportunity if he has to pay two mortgages until his current residence sells. Again, an unsecured line of credit can bridge the gap.

Whether its used to meet emergency expenses, cover temporary cash flow shortfalls or fulfill dreams, an unsecured line of credit is the loan product that can do it all for the borrower with good credit and fortitude.

Small business loans for women: Why women need and deserve special financing.

Maybe it’s easier to start with an explanation of why women deserve financing designated specifically as small business loans for women. The numbers tell the story best.

•    Small businesses owned by women have created more than 13 million jobs and, in 2008, created $1.9 trillion in revenue.

•    Women own 10 million businesses, accounting for 40% of all privately owned businesses.

In other words, small business loans for women aren’t provided because of an inherent lack of ability that renders them “special needs” entrepreneurs; they are an essential segment of the U.S. economy.

It might be fair and even true to say they’ve achieved such successes specifically because of small business loans for women, and that without them, women’s businesses would fail or even fail to see the light of day, never getting the essential financing.

So how to explain the evolution of small business loans for women? Why are they more necessary than say, small business loans for men?

Nearly all small businesses are started with personal savings and investments from friends and family members. For a number of reasons those financing sources are limited or entirely unavailable for women.

A number of social circumstances create the necessity of small business loans for women. Women are paid less than men for doing the same job—20% less. That’s a tremendous improvement over the 40% wage gap that existed 30 years ago, but that wage disparity makes it 20% more difficult for women to build personal savings. And, of course, because a woman’s best friends are usually other women, that avenue of business financing is often a dead end street.

As well, women head 85% of single-parent households, placing another impediment on their ability to finance their own small businesses, and for many of these women owning a small business may be their only option for overcoming the 20% wage gap and achieving wealth and family stability.

Without small business loans for women—specifically for women—the U.S. would be denied an enormous pool of talent, jobs and revenue and families would be less stable.