Unsecured business loan can be a good option to be considered when an entrepreneur or businessperson is looking to get small financing without putting any collateral. With this kind of loan, the borrower is able to avoid risking putting any assets on the line for funding. However, the lender minimizes the risk of the borrower failing to repay the loan by increasing the rate of interest and having the borrower put personal guarantee. Despite the higher interest rates, unsecured bonds can be quite a lucrative option for business owners at times. This article intends to highlight the reasons why getting an unsecured business loan is a good option to be considered.
Basics of Unsecured Business Loan
Providing funding in exchange of assets has been quite an age-old tradition and over the years it has become the norm. Providing a secured loan, i.e. assigning a collateral against a small business loan is average practice. This enables the lender to secure the amount that has been loaded by liquidating the assets. While expensive items of the business can be used as a collateral what happens when a borrower does not have expensive items or is wary of putting the items online for funding? In such a case or if the business owner is less creditworthy then the borrower can apply for unsecured business loan as they do exist in the market.
When and why opt for Unsecured Business Loan?
There can be several reasons when a business owner should and might consider to get funding from unsecured business loan.
• Require fast funding: Business owners who might need funding fast might consider the unsecured business loan option. Unlike secured loans that require a lengthy process, paperwork and vetting period, unsecured loans can be processed fast with only a few documents.
• No assets required: One of the key benefits of getting an unsecured loan is the borrower does not have to risk either the business or personal asset/s to get the funding. However, with an unsecured loan, the borrower has to provide a personal guarantee so that they can be charged at the time of failure of repayment.
• The larger amount can be borrowed: At times with unsecured business loan the borrower can opt for a larger amount and it can be granted compared to secured business loan. This is because in a secured business loan the value borrowed is approved on the basis of the collateral that is offered. The loan amount sanctioned is generally a percentage of the value of the collateral. Since in unsecured loans there is no collateral hence the borrower has the chance to get more funding than in secured business loan.
Also read: Unsecured Loans: Quick And Convenient Credit
While these advantages are there with unsecured business loan there are few disadvantages to like, it charges higher interest rates since it does not have any collateral as such. But in reality, with a personal guarantee, unsecured business loans does work as a collateral because the personal guarantee is required to put the personal financials on the line for securing the funds. The tenure for repayment is shorter for unsecured business loans and it is hard to qualify for one.
However, despite these concerns, the unsecured business loan can always be a good option for those business owners who wish to receive fast funding and confident that they can repay the loan without failure.