Unsecured business loans are loans that are borrowed without offering any kind of collateral. Secured loans on the other hand need a form to asset to be offered as a collateral in the case of the borrower defaulting. These type of loans however have become difficult to acquire due to the economic scenario with banks implementing stricter norms and conditions for business loans.
For people considering unsecured business line of credit as an option for financing your business, it is very important to know that these loans are among the most expensive ones out there. Banks are reluctant to sanction these kind of loans as they deem them to be too risky. This is because if the business venture were to fail, the banks would not have any way to recuperate the loan they have sanctioned leading to a total loss.
In order to get an unsecured loan, you must have a perfect or close to perfect credit score and should possess the ability to repay the amount.
Criteria For Unsecured Loans:
Unsecured loans can be easily acquired if the borrower has a high net worth or is a top level professional. The most common form of unsecured loans is through a credit card which can be quite expensive. The credit cards can only let you borrow a certain amount of money and then you will have to pay interest on the amount. Businesses in the sales and service sector are always advised to go for secured business loans and should consider their options before they decide for an unsecured business loan.
Though there are independent organizations that offer unsecured loans, it is always better to use banks to get the loan sanctioned.
It is better to speak to a banker or an expert before going for an unsecured loan. It has been seen that banks have been inclined towards granting unsecured business loans only to large businesses and corporations. An established firm has a distinct advantage when it comes to acquiring unsecured loans as they have a proven track record of paying back money, have a good credit rating and generate substantial revenue. Banks can also extend the loans if the business has a good inflow of revenue.
Another thing that individuals can opt for is Merchant Account financing which offers the loan as a credit card but does not need any instalments in return. Instead it takes a percentage from the profit made by every sale through a credit card transaction. Generally these can be as high as 30% of the profits.
Advantages Of Unsecured Funding:
The borrower does not need to offer any asset as a collateral.
Offers a flexible option of payback.
Available easily and in a very short span of time.
The interest rates are very high.
The borrower’s credit rating can be affected.
Compared to amounts given under secured loans, lenders offer smaller amounts.
What You Must Do Before Going For The Loan
You must consult a financial expert to analyse the entire situation and decide if taking an unsecured loan is viable for your business venture.
You must also be careful and stay away from organizations that are scammers. Do your research properly.
Think about the duration for which you need the loan and make calculations regarding the payment you have to pay back. Failure to repay can spoil your reputation as well as credit rating.