Securing finances can be one of the most challenging facets of setting up or managing a business. However, it is also undoubtedly one of the most important aspects. Whether it is to purchase a new asset, expand your business, or simply fund daily operations, there are many reasons why you might need some additional capital.
As a small business owner or entrepreneur, you can choose between secured or unsecured business loans for your financing needs. Read this guide to learn more about unsecured loans and how they can be a viable funding option for your business.
What are Unsecured Business Loans?
Unsecured business loans are exactly as their name suggests—they are loans that you can take without putting up any security or collateral. Secured loans require assets, such as real estate or unpaid invoices, that you need to give up if you default on the loan. Unsecured loans are essentially the opposite, making them less risky and suitable for businesses with fewer assets.
Given the lack of collateral in an unsecured loan, lenders will look at your creditworthiness to determine your eligibility. They may also consider other factors like your business income and cash flow and how long you have been operating.
Why Get an Unsecured Business Loan?
Unsecured business loans come with several pros. Aside from the ability to get financing without collateral, here are other reasons why this loan may be suitable for your needs:
- Shorter Application Time
Unsecured business loans often take a shorter time to process since lenders need not evaluate your collateral. In most cases, you can expect to receive your funds 24 to 48 hours after submitting your application—this makes it ideal for businesses that need financing as soon as possible.
- Opportunity to Build Credit
Another great thing about unsecured business loans is that they allow you to build your business’ credit profile, which will be helpful for future financing needs. Check to see if your lender reports to the credit bureaus to ensure that the loan will reflect in your company’s credit history.
- No Risk to Assets
Since you need not pledge collateral for an unsecured loan, you place no risk on your business assets. Even if you default on your loan, the lender will be unable to go after your business assets.
- Borrow Smaller Amounts
Most unsecured loans are available in smaller amounts, making them highly suitable for businesses that need funding but cannot commit to such a large loan. This way, you can also keep your repayment periods shorter to avoid leaving debt for too long.
- Flexible Loan Amounts
In most cases, secured loan amounts are tied to your collateral’s value. Since unsecured loans come with no security, you need not worry about this. Of course, lenders usually still impose limits as to how much you can loan at a time. However, you generally have more flexibility with the loan amount.
As you can see, unsecured business loans are a great financing option for businesses that prefer not to put their assets at risk or need funds immediately. There are many advantages of unsecured loans, as mentioned above. However, it is always important to do your research before taking any loan, including unsecured loans. Make sure you compare your options for lenders and rates before deciding anything.
