At some point in our work or business, we will need to get a loan to finance our goals and build our dreams. Whether you have a practice or business of your own, an unsecured business loan is an option you can take to solve financial issues immediately or to fund your current business strategies.
What is an Unsecured Business Loan?
An unsecured business loan may be the one you’re looking for if you want to get a funding solution that doesn’t require a personal or business asset as collateral. All you need to show the lender is a credit score with a good financial history and positive business cash flow.
In this case, the lender or financing service takes more risk in granting a loan, as they don’t secure a collateral from you. What they can take from this is a higher interest rate. Another risk is that the borrower might default and may not be able to repay the loan. This risk is what makes unsecured business loans have a large repayment amortization than a secured business loan.
If you’re going to get an unsecured loan, you must show a detailed cash flow analysis that indicates a regular monthly payment which you can confidently comply during the loan period.
How Can Your Business Benefit from an Unsecured Business Loan?
If you don’t have assets to secure as collateral, or don’t want to risk any, an unsecured business loan can help you get the necessary funding quickly. Whether you want to get fit-outs for your shop or finance your business needs, getting an unsecured loan will help you set everything up without a fuss. All you need is an effective strategy for repayment, which can be covered with the cash flow from your business in the given loan period.
Unsecured business loans can greatly help you get the financing you need in a week or less. Take for example instances such as paying your employees when you’re strapped for cash, renovating your office or shop, or buying equipment for your business. You can solve financing concerns and make your business grow, even if you don’t have the means at the moment, with an unsecured loan.
Pros and Cons of Unsecured Business Loans
Loan Term: The interest rate that would be charged to you depends on the borrowing period. The loan period in unsecured business loans is usually shorter than a secured or collateral-based loan. Therefore, you have to hustle in paying back the loan in a shorter amount of time and secure the cash flow needed.
Interest Rates: The interest rates in unsecured loans may be higher than secured loans, but they can be lower than other options. Take for example a revolving credit loan such as personal, student or credit card loan. These credit options are unsecured and involve a continual payment plan and borrowing, thus attracting high interest rates. Unsecured term loans can be better than revolving credit in a way that it allows the borrower to repay the debt in equal installments until the loan term ends. If your business needs to consolidate debt repayment, unsecured loans can be helpful for you.
Risks: The borrower also takes on a high risk when getting unsecured loans. Merchant cash advance and payday lenders can charge high interest rates. These lending companies can often make borrowers agree on automatic withdrawals from a current account. The result is a never-ending cycle of borrowing and excessive repayment charges.
Guarantees: The worst case scenario in getting unsecured loans is when the borrower defaults on repayment. This happens when a business owner might no longer have the means to repay the loan, and the lender has to resort to debt collection. In some instances, the borrower will be placed in a difficult situation and may have to apply for bankruptcy. To avoid this issue, the business owners or company directors will have to sign personal guarantees, especially if they have limited assets or do not provide a form of collateral.
In a general view, these are the pros and cons of having an unsecured business loan:
- Unsecured loans can help you grow your business or solve business financing as soon as possible. Unsecured loan solutions you can find online typically take less time to apply (even as short as 24 – 48 hours). You can get this as long as you show a good credit score and a solid cash flow.
- There’s no risk in letting go of existing assets such as a house, vehicle, property, valuables or long-term holdings.
- The borrower does not need to document their assets; thus some parts of the loan underwriting may be easier.
- The interest rates in unsecured loans are usually higher than secured loans.
- For those who do not have a good credit score, unsecured loans can issue a particularly high debt load.
- If you don’t have a good strategy for repayment, or that cash flow may be difficult in the coming months, you may not be able to keep up with the loan repayment.
Unsecured Business Loans – Who is it for and who is it not for?
Unsecured business loans work best if your business shows a good cash flow every month. For example, if your business shows a profit of a certain amount every month, and you’re confident that you can pay the loan back in the given loan period, then forge ahead and make the most out of getting an unsecured loan.
If you’re just starting out a business, you have to show that you have other income streams which can repay the loan. However, this can be risky as an income flow might not immediately turn out in your business. It is best that your business is already generating an income to cover the costs of paying off a loan.
An unsecured loan helps support the growth of your business, but the important thing here is that you’ve got to have an income stream to pay for the loan in the coming months. Once you’ve paid the loan, you’ll see how getting this option helps expand your business. The key here is to have a solid strategy of letting the loan work for you and being sure about paying it off during the time given to you by the lender.
Take the worry out of getting an unsecured business loan from our no-fuss funding solution. Bizzloans has provided thousands of business with funds that work perfectly for their financial needs. We make it easier for you to get a loan with terms that suit your business. Start making the most out of unsecured loans by getting a quote here.