Business loans come in all shapes and sizes – some of them are better than others, but they also bring in a wide variety of features, terms, and conditions. There are some requirements to get a business loan – perhaps a down payment or maybe a solid business plan.
All in all, if you struggle to get a business loan, there are a few general ideas that could help out. At the end of the day, the more you know, the easier it is to make an informed decision. Here is how to handle the best-unsecured business loans out there.
Defining unsecured business loans
Unsecured business loans are more common for small or middle-sized businesses. If you do not want to offer security, you will obviously be capped, but this is by far the best option.
This is also a solid option for businesses that do not own a lot of assets. The same rule applies to companies facing unexpected growth – quick financing is a must then.
There are plenty of lenders out there, and the money you can get can vary widely. There are different circumstances, and each case is usually analyzed individually.
What it takes to get an unsecured business loan
An unsecured loan has a simple rule – there is no security offered by the borrower. On the other hand, a secured loan offers some security. Basically, if the borrower cannot repay and things go wrong, the lender has the option to take some assets and sell them in order to recover the money.
To think about secured loans, you require some security first. But then, there are options if you do not have any. These days, plenty of companies handle intangible assets. For instance, if you run a software development company, you probably rent an office for a cheap price and have a few computers only.
There are not too many tangible assets that lenders can take over, hence the necessity of an unsecured business loan. This is the age of alternative finance, though, meaning you can find lenders everywhere – even online, without having to see someone in person.
Since there is no security offered, your trading history seems to be one of the most important considerations in the process.
Now, unsecured loans are usually quicker because no one needs to evaluate any goods in terms of security. Since there are no assets required, this type of loan is more accessible.
You may have to offer an upfront payment, but this is not always a general rule. Finally, since there is no security, the lender takes a higher risk, so the overall cost is likely to be a bit bigger.
How about a personal guarantee?
It is not unusual to be asked for a personal guarantee. Sure, you have no security, but how about a guarantee then? Lenders are very likely to ask for such agreements because they tend to reduce potential risks a little.
Personal guarantees will not provide a major commitment, though, but they can help businesses gain more money from lenders.
Again, this is not a general rule, so you may not be asked for personal guarantees either. Providing a personal guarantee can reduce the overall cost.
Most common uses for unsecured loans
While lenders never make these things public, the reason for your loan is an important consideration for them. Provide the right answer, and you may get money in no time – come up with a sophisticated strategy, and it will delay everything or even lead to rejection.
For instance, many businesses require such loans to boost their cash flow. This is the most common reason, regardless of your expenses.
Some other companies require money to grow their business a little. They need to expand, so they require a boost.
Purchasing stocks and assets is just as common, not to mention random one-off costs – such as an expensive machine breaking down.
Main benefits of unsecured loans
Since there is no security, no one can take anything from you to sell and get the money back – that is a plus, but it makes the loan more expensive in the long run.
More importantly, unsecured loans are easy to obtain, assuming you are not asking for hundreds of thousands. Sometimes, it is a matter of hours – all online.
Bottom line, unsecured business loans are similar to personal loans for people. You do not need to put anything down, even if you do have the assets to provide some security. It will help, but it will also come with a risk. Eliminating this risk comes with a cost – the loan will cost more.
There are a few common reasons wherefore unsecured loans are popular among businesses, but they are limited.