If you have ever tried to start up your own business, you already know that being approved for a secured business loan to start it up can be a painful process. Depending on what type of lender or bank you go through, the process can take a tremendous amount of time, for little or no return in the long run. In case you aren’t completely established, with strong credit rating, and have nothing to place as collateral, where can you go?
Unsecured business loans are there. Unsecured business loans aren’t commonly applied within the business world; but are an incredible way to start your small business when nothing will help you out. With quite a bit more flexibility when applying comes to mind.
Unsecured Business Loans
Unsecured loans are exactly what their name suggests. These loans are not backed by anything, and are a bit uncertain in terms of the way they’re handled. The main thing that differs from a secured business loan is collateral. But with unsecured business loans, there is no collateral for the loan, therefore being considered unsecure.
Why Unsecured Business Loans Are Preferred?
What makes unsecured loans a preferred funding option for the small business owners? For instance, the funding amount that you can borrow is augmented by an exponential amount. Generally, the amount that is available under this program is primarily based on the amount of collateral, or a small portion thereof. Consequently, without there being any collateral requirement, you can negotiate larger amounts.
The main reason that unsecured business loans are preferred is the fact that there is no limit on the use of funds. However on the other hand, the secured business loans can only be used for what the lender deems fit. However the unsecured business loan can be used for anything except gambling or illegal activities.
Disadvantages of Unsecured Business Loans
Despite the fact that unsecured business loans look great, it need to be remembered that they come with a few high ties to possible issues.
One of the big problems with unsecured loan is their excessive interest rate. Irrespective of what type of loans are given out, they come with an interest rate. Since there is no collateral requirement with unsecured loans, they’re creating a huge risk.
Another drawback is the term of unsecured loans. In contrast to other loans that are normally closer to a couple of years, the repayment for unsecured business loans can be 1 to 1.5 years. Combine that short term with higher interest rates, and it could without problems be a knock-on effect to debt if you aren’t careful.
This term is usually non-negotiable, so knowing that you are locked into whatever plan you pick out at the beginning is a must.
Throughout the whole process, make sure to always have someone expert and informed by your side while making these transactions. A lawyer can be a best resource for you to go with, as they can help you maintain track of what is going on.