An unsecured business loan is a type of loan lent to a borrower that is not guaranteed by a collateral. The loan is lent on the mere basis of the borrower’s creditworthiness, usually by showing an excellent credit score and an established partnership with the bank.
A collateral is a property of significant market value that can be taken by the issuing lender if you fail to pay off your loan obligations. An unsecured business loan is basically a signature loan and you’re lucky if you have the credentials to qualify for such. But many lenders and banks prefer to secure their loans, since its possibility of being paid back is contingent on the business’s capacity to thrive – there is just too much risk.
A gap in definition
Some lenders may also take the definition of “unsecured loan” differently. Instead of collateralizing your loan or line of credit, they put a general lien on the your business assets which are not lifted until the loan is all paid off – a clever and smart way of streamlining the process while also securing risk for the lender.
Less than stellar credit?
If you’re worried about not having a stellar credit rating, there are many online lenders that have less stringent qualifications and follow non-traditional requirements, although you have to fill in the risk by paying a higher interest. Online lenders are reputed to process loan applications fast – as fast as 2 days. This is highly advantageous when you need the money immediately.
Just a tip though, do not borrow more than you need. Even if you qualify for more money, borrowing more can also cost you more in the long run.
As your creditors report your payments to the credit bureaus, you will also improve your credit, if you secure on-time payments consistently. Having good credit is beneficial – especially for most business owners – to gain access to other forms of financing in the future and push the barriers of financial products available to you.
A line of credit is an option too
If you want secure footing on your finances, however, and want to make sure that you have money for emergency expenses, you can apply for an unsecured line of credit which you can use on an as-needed basis. A major advantage to this is you only pay interest on the amount of credit you procure.
Unsecured business loans are not unheard of. Although it may be difficult to get through, many lenders nowadays are easing their qualification standards to accommodate many more business men and women in need.