Will an Unsecured Business Loan Be a Good Fit for You?
So you’re thinking about starting a business, but you’re not sure how to go about getting financing. Or maybe you already have a business, but you need some money to bridge the gap during your dry spell.
If you need a business loan fast, there are a lot of options, and it’s overwhelming. Should you look into unsecured business finance versus secured business loans, or a loan versus a line of credit? Let’s look at the pros and cons of each because your circumstances dictate what the best option is for you.
Secured and Unsecured Loans
A secured business loan requires some collateral to secure the financing. Your lender wants to be able to exercise some precaution or seize an asset or two in the event you default on your payments.
This poses some risk to you because you stand to lose your business, your car, your house, or quite a bit of money if you can’t make your monthly payments. Alternatively, unsecured business loans don’t require you to put up any assets for financing and pose more of a risk to the bank.
With an unsecured loan, there is no risk to you or your existing assets. You still have to meet income and credit requirements, and you may end up paying a higher interest rate, but you are at less of a risk of losing anything in the event you can’t make a payment.
When looking into secured and unsecured business loans, small businesses can borrow anywhere from $5000 to $500,000, depending on the size of the business and the business’s credit rating. Lenders simply take into account the credit history of the applicant.
Pros of Unsecured Loans
Secured loans are limited by the worth of the assets used to secure it. Unsecured loans aren’t under such constraints, and by applying for an unsecured loan, you could obtain higher loan amounts.
Unsecured loans are funded faster because you don’t have to wait for an appraisal of your assets before holds are released on your financing. Some lenders can get small businesses approved within seventy-two hours of applying.
Unsecured loans are easier to get because they require less paperwork and limited documentation. While this sounds like the opposite of the way it should work, it is true that getting an unsecured loan is quite often the easiest type of financing to get.
With an unsecured loan, your business has greater flexibility and more room to grow. You can cover expenses during a slow month without worrying about making ends meet. You can use it to make improvements and bring more customers in the door.
The easiest way to use an unsecured loan for growth is to have a working capital line of credit. This revolving line of credit allows you only to pay interest on the money you borrow and leaves you an open door of opportunity for using exactly what you need when you need it.
Cons of Unsecured Loans
You may not put up any assets to obtain financing, but you are still under some liability to make payments and stay honest. Because the lender doesn’t have any collateral, they won’t hesitate to harass you in the event you miss a payment. They also have no qualms about dropping you or your business as a client.
While properly handling your loan and making payments on time builds a good relationship with your lender, mishandling your loan could damage your reputation with your lender and hurt your chances of getting financing in the future.
Unsecured loans put the lender at an increased risk of losing money, so typically these types of loans come with a higher price tag. Especially if you want an unsecured business line of credit with bad credit, you’ll pay for it in higher interest rates.
You have less flexibility on the length of terms of repayment with an unsecured business loan. It’s hard or impossible to renegotiate at a lower rate later and sometimes if you try to pay the loan off sooner, you get hit with fees for early repayment.
If secured or unsecured business loans aren’t right for you, there are some other options like cash advances and lines of credit. Unsecured cash advances work like unsecured loans. You don’t need collateral. Lenders simply look at your credit history, your existing business volume, and your repayment potential.
The approval time for cash advances is faster than for loans, but the most important factor is your credit score, so if you have bad credit, this isn’t a viable option. The lower your credit score, the less you can borrow.
Partially secured business loans are relatively new but may offer the best of both worlds. If your preferred institution offers these types of loans, you have the option to put up less collateral and still borrow your desired amount. Banks feel better about having some protection, and they’re more willing to lend to businesses willing to share the risk.
Only you can decide if an unsecured business loan is right for you. If you need a business loan fast, you can find asset-based loans and same day business loans online at Quick Loans Direct.