Unsecured Business Loans: Why, When, How? - Growth Freaks

Unsecured Business Loans: Why, When, How?

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Unsecured business loans represent a way of borrowing money. You need to pay regular payments each month until you have paid back the entire amount of money. The loan is not tied to any security. Therefore, the interest rates might be higher. However, it is extremely important to learn how and when to use unsecured business loans because this makes the difference between failure and success.

Unsecured business loans work just like any other loan where working capital gets extended to the company, and then the company repays the amount of money over an established period of time. Usually, the interest rate is arranged from the beginning. Furthermore, you may be perceived a fee for arranging the loan.

Types of unsecured business loans

This type of business loans can be available via angel investors, government loans, peer-to-peer lenders, specialist business lenders and banks. You can choose from several types of business loans, such as:

  • property development loans
  • mezzanine loans
  • peer-to-peer loans
  • working capital loans
  • business acquisition loans
  • start-up loans
  • business cash advance
  • small business loans
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Unsecured business loans can offer a lot more advantages than secured loans.

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However, all these kinds of business loans fall into two categories, namely secured and unsecured business loans. The repayment amount and the interest rate for both types are established for the term of the loan. The difference is that a secured loan relies on an asset as collateral while an unsecured one does not depend on any asset.

A secured business loan has a lower interest rate compared to an unsecured one. Therefore, a secured loan reflects a greater risk elongated by the lender to the borrower. Nevertheless, depending on the creditworthiness, this might not obligatorily be the case.

It is better to choose an unsecured business loan since it can be a very flexible finance option that is suitable in various cases. You can work capital to manage or increase the business’ cash flow. Furthermore, you can use the loan for refurbishment or to expand either your business or premises. You may also use an unsecured business loan to buy a new asset, like equipment, plant, and vehicles.

A specialist’s opinion

Rosalind Resnick is the founder and CEO of Axxess Business Consulting. This a consulting firm in New York City that offers advice to small business and startups. Rosalind indicates that many entrepreneurs find it difficult to find a business loan to develop their company without putting up their assets.

However, a creative way to obtain an unsecured business loan is to deal with non-bank lenders, like factors. Factors represent financing companies which offer credit lines relying on assets and which are secured by the company’s receivables.

The benefits

No need for assets

This is one of the greatest advantages when using an unsecured business loan. In case your business is unable to make repayments on loan, the lender has no claim over your property or your business.

Easier to access

It is quicker and easier to get an unsecured business loan since you have to do less paperwork to assess and value assets.

Higher loan amounts

Even if this might seem odd, this type of business loans does not have an upper limit to it. Although the repayment schedule and interest rates will indicate larger loan amounts, unsecured business loans have no limit.

More flexibility

You will have more capital that you can use whenever you need. This is perfect for when you need working capital, to hire a new person or to buy new IT software.

Wrapping up

An unsecured business loan can help you extend your business and develop a relationship with your lender. Furthermore, this will be useful in case you will need additional credit. Choosing for an unsecured loan is amazing since you won’t need to put up your assets.

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Author: Amanda Knowles