Are you considering to get a business loan to have a funding for your small startup business? But at the same time, worried about not having a collateral for the approval of your application?
If you are looking for loans to fund your business, but don’t want or don’t have the assets to put as a collateral, you can still get a financial assistance through unsecured business loans.
If you are serious about starting your small business and want to get funded, then you might want to consider this option. And if you haven’t heard of unsecured business loans before, then it is just timely that you have bumped into this article.
Here is a brief discussion of what the business loans without collateral are all about and the pros and cons to give you an idea of what you are considering to apply for in financing your startup company.
Unsecured Business Loans Definition
An unsecured business loan is a type of credit which a bank offers where the borrowers don’t need to put their assets such as their cars or real estate properties to for their startup businesses to be funded. It is a way to get a capital investment especially to those who cannot afford to provide an asset to secure their loans.
Unlike a secured loan, the borrower must be able to provide an asset as collateral to provide the lender a security that when the loan doesn’t get paid, the collateral will serve as a replacement to recover the credit.
What Are the Advantages of Unsecured Business Loans?
One of the advantages of unsecured loans is that it has lesser requirements for credit approval compared to secured loans because there is no collateral to comply. On secured loans, the lenders can take the properties of the borrower if he/she cannot pay the rates on the specified term. On the other hand, the finance institution cannot just take away your assets if you cannot pay the credit unless it undergoes a due process. Also, if the business doesn’t go well and you need to file bankruptcy on your company, your unsecured loan can be discharged by the court, and that cannot be easily discharged on secured loans.
What Are the Disadvantages of Unsecured Business Loans?
On the lender’s side, unsecured loans can be a bit risky. What if the borrower doesn’t comply with the terms? That is why business loans that don’t have collateral have higher interest rates. That means that you will have to pay for higher amounts and that can be difficult to maintain. You have to make sure that you have extra cash to pay for the first months while your business is still starting. Lastly, unsecured loans need a good credit reputation to be approved. And if you don’t have a poor credit history or you haven’t established your credit score yet, it can be hard for the lender to approve your loan.
Think Before You Loan
Now that you know the benefits and consequences of the unsecured business loans think wisely before getting the loan. While it can be easier to get if you have a good credit score, make sure that you can pay for the monthly interest rates. In order to do so, organize your business plan wisely so that you can have a perceived realistic monthly returns. Once you have finalized your business plan, then review your credit score and apply for an unsecured business loan.