Certain Benefits of Unsecured Business Loans for Entrepreneurs

Certain Benefits of Unsecured Business Loans for Entrepreneurs
Certain Benefits of Unsecured Business Loans for Entrepreneurs
August 29, 2016

Small businesses around the world always need an injection of capital either to start things or to keep things going as they should. But ever since the financial crisis of 2007 and 2008 the way that people borrow money for their business has drastically changed.

Different bank policies before the financial crisis

Before the infamous crisis people needed to put down collateral to get a loan from the bank, and if they were unable to do this, their loan would not be approved and they had to give up on their dream of starting a successful business. But things have certainly changed since then.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

An unsecured business loan is not guaranteed by property

Giving out loans to businesses banks usually require you to put down some form of collateral as a measure of security for the bank. If you do not pay back the loan the bank can then seize that property.

For an unsecured loan you need good credit

An unsecured loan is not guaranteed by something like that, but by your credit. So, in order to get one you need to have high credit ratings. These loans can go from $5,000 to as much as $500,000.

Unsecured loans have higher interest rates

There is a downside to all of this – unsecured loans have higher interest rates than secured loans, because they present more risk to the bank than the other kind. But to put things in perspective for you, these loans still have lower interest rates than the ones on credit cards.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

Statistical information on unsecured loans

As you probably already know, banks don’t give a lot of loans to small businesses, because small loans do not bring in a lot of profit. In most cases, about 10% of the bank loans go to small businesses. Then after that, they do not give unsecured loans that much either. So, perhaps going to your local bank should not be your only consideration.

Non-traditional unsecured business loans for you to consider

The good thing is that bank is not your only option for getting an unsecured loan. There are online platforms for lending that offer their services in these cases. You credit does not has to be up to the standards of the traditional bank, but the interest rates can be higher.

Online lending is really fast and efficient

It takes significantly less time to apply for a loan online that to do so in a bank, which is a good thing if you are in a hurry. In most cases you will be able to get your funds within 48 hours or less.

Read also: What You Never Knew about the Small Business Administration Loans

Calculations in secured loans are based on collateral

When applying for a tradition secure loan, the bank will calculate how much money you can get based on the value of your collateral. Things are a bit different when it comes to unsecured loans.

You can have more funds with an unsecured loan

The amount of money you get will be decided on these factors: the overall health of your business, the amount of experience you have in the field, your cash flow and your business profile. So, you may get more money with putting down collateral.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Article highlights

  • Most people need a loan to start their business.
  • The way money is being lent has changed since the financial crisis of 2007-08.
  • Secure business loans are guaranteed by collateral.
  • Unsecured business loans do not need personal property as collateral.
  • Higher interest rates are to be expected in unsecured business loans.
  • Unsecured business loans present more risk to the bank.
  • Small loans do not bring a lot of profit to the bank.
  • Lending money online is fast and easy.
  • You can get more money from an unsecured business loan than from a secure one.
  • Online lenders have more flexible terms.

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