So you have a small business and everything is going fabulous, but then something happens and now you have some unpredicted expense on your hand. What do you do? Do you just close up shop and wonder what could have been? Of course not! There are ample options available and one of the most popular is going for a small business loan. A small business loan is a financial healer which can help you get through difficult times and even support your expansion when you’re on a roll. However, the people that are lending you the money need to take protective measures as well, and that’s where the terms “secured” and “unsecured” come from when talking about business loans.
Unsecured business loans – These are types of loans that do not need you to put down any assurance for the loan. Assurance is one or many assets which represent a guarantee that the lender is getting their money back nevertheless you’re able to pay directly. If a loan is taken out on the premise of assurance, it means it’s a secured business loan. As you would expect, the unsecured version is much more popular since there is low risk involved for the borrower.
The interest rate – While the risk is low for you in the case of an unsecured business loan, it is significantly big for the lender. This is a business for them which means that they count on customers like you paying back on time in order for them to remain profitable. If they don’t have the guarantee of collateral or assurance, they will increase the interest rate, because it’s a bigger risk. That’s why unsecured loans have a higher interest rate in most scenarios.
Multiple options – When you take out a business credit, you have many options in terms of what form it will take. You can get it as a personal loan, a credit card, a corporate bond or even a payday loan. The differences between these are often in the details but knowing what each offer might uncover that one of them heavily surpass the other in your specific case in terms of benefits.
Alternatives – It’s essential to keep in mind that an unsecured business loan is not the only choice you have. You might find a much more matching solution by researching all the options known to you, not just the different variations of unsecured business loans. For instance, an unsecured business line of credit might be a far better alternative for your company, in order to carry out your objectives. Whether or not those are easier to obtain, that’s the different story. But you will surely find out before finalizing any type of loan contract.