When looking out for capital to fund your small business, you may look towards a loan. Whether your business operates as an S-Corp, LLC or C-Corp, you may get approved for a business loan if your small business is financially strong. However, there are several different types of business loans, one of which is an unsecured business loan.
Today we’ll take a more in-depth look at what are unsecured business loans and the way it could benefit your small business.
The Basics of Unsecured Business Loans
An unsecured business loan is a business loan that is not supported by the collateral. To decide whether or not you are a good candidate for an unsecured business loan, the bank will examine factors like credit records, profits, time in business and your business plan.
This is exactly opposite to a secured business loan, which calls for the small business owner/borrower to use assets as collateral. With a secured business loan, small business owners with a bad or no credit can have a less difficult time getting approved. However, they must additionally have the necessary assets to apply as collateral.
There are a variety of structures used to organize unsecured business loans. A revolving line of credit, for example, allows the borrower to continue drawing cash from the bank, up to a stated limit, as long as the borrower makes payments according to schedule. A conventional non-revolving loan offers the small business owner a flat amount, which they must pay back in small amounts.
Benefits of Unsecured Business Loans
The primary benefit of acquiring a collateral-free loan is the reality that it doesn’t require collateral. Small business owners are often hesitant to use collateral to secure loans, fearing that it could come back to hurt them later down the road. In case you are not able to pay back a secured loan, for example, the bank may also take possession of the property used as collateral. This isn’t a problem with unsecured business loans, as there is no collateral used to acquire them.
Disadvantages of Unsecured Business Loans
Alternatively, getting an unsecured business loan can be difficult when you have bad or no credit. New businesses generally lack the credit score worthiness of their established counterparts. And without a strong credit history, traditional lenders may be reluctant to provide an unsecured business loan. With that said, there are ways for new small businesses to build their credit. This will increase the possibilities of having accepted for an unsecured business loan.
An unsecured business loan typically indicates you don’t need to pledge any physical assets directly to acquire the loan. Many unsecured business loans will still usually file a blanket UCC lien against your small business assets and require a personal guarantee.
You can get the unsecured business loan of as much as $150K if you have more than six months in business, with at least 550 credit score, and at least $100K in annual revenue. The quick online application can get you approved in just minutes, and get you funding in as little as one business day.