What is an unsecured business loan and how can it help you?
If you’re searching for a suitable financial aid for your business, then without doubt you have run into the term “unsecured business loans”. If you don’t know what that means exactly, you have come to the right place as we are going to give you the rundown of what characterizes an unsecured business loan. With that in mind, here are the top things you need to know about this type of loan.
It does not depend on collateral
Unlike other loan types, an unsecured business loan does not depend on collateral. If you were to get a regular secured loan, you would have to factor collateral into the equation, as it would serve as the main guarantee for the repayment of the loan. However in the context of an unsecured business loan, you don’t have collateral.
It can be used to consolidate your credit
Your credit score as well as your credit history play a big role in how businesses, institutions and financial entities view and interact with your own business. If you have a great credit score, it is much more likely for you to receive a bigger unsecured loan. However if your credit score is down, you might not qualify for an unsecured loan at all. Getting a smaller unsecured business loan and then repaying it in full, in time, will consolidate your credit score and help you build a better credit score for when you want to take out an even bigger loan.
It has higher interest rates
Since there’s no collateral involved in this type of loan, you are looking at higher interest rates which will compensate for the lack of repayment guarantee. While unsecured business loans can be great for your business, you do have to buckle up for owing more in interest.
You can be sued
Just because there’s no collateral doesn’t mean that lenders don’t have the possibility of repositioning your property. In case of defaulting you are liable to being sued and they can even go after your personal belongings, not just the business assets. This depends on factors such as whether you’ve co-signed for the loan as the business owner or not. The bottom line is that defaulting on an unsecured business loan isn’t a smart move and is nowhere near as easy to get past as some believe.
It’s only one of several options
When it comes to unsecured business loans, they are just one of multiple options at your disposal. If you qualify for an unsecured business loan, you should definitely see if you qualify for the lender’s business line of credit. A line of credit might help you out more but that’s highly dependent on your personal situation and the context of your financial emergency or requirement.