Unsecured Business Loans

There are many types of business loans that can be applied for. This is determined by your business needs, your financial position and credit history. One simple way to differentiate between any types of business finance is to check whether the loan is backed by any security or not.

There are flexible means of repayment since the loan repayment is usually spread over a long period of time and paid back periodically. The interest rate on a particular loan also differs from another.

If you are looking for a business loan without offering collateral, an unsecured business loan may be the best choice for you.

An unsecured business loan is a source of business finance that doesn’t require any security or collateral to qualify. What this means is you won’t need to put your valuable assets as collateral should you default in the repayment of a loan. Such collateral could be a house, vehicle, bonds, shares, stock, savings, etc. it is a type of loan for businesses with no assets, or businesses with immense growth potentials and need finance.

There are various advantages of unsecured business loans. Unlike secured loans that put your valuable asset at risk of being repossessed, unsecured business loans mean you don’t have anything to lose.

In recent times, most businesses only have intangible assets. These assets sometimes cannot be used as security for a loan hence unsecured business loans.

There are different forms of unsecured business loans with one thing in common. They all do not require any form of security or collateral. However, the borrower signs to be responsible for whatever future occurrence that may happen should they default in repayment of the loan.

Although an unsecured business loan may be gotten personal guarantee or claim of responsibility, this only increases the interest rates and makes the loan more expensive.

Advantages of Unsecured Business Loans

  • There is no need for security or collateral which means your valuables can’t and won’t be repossessed
  • It is easy, simple and quick to disburse
  • Low or no initial deposit

Disadvantages of Unsecured Business Loans

  • The interest rates are higher compared to other loans
  • The term period for repayment are usually short
  • High risk for the lenders
  • They are harder to qualify for
  • Loan amounts are often smaller

What can be financed with Unsecured Business loans?

Unsecured business loans can be used for different business needs. It is easy and simple to apply for compared to other business loan.

Examples of things to finance with a business loan include;

  • Business expansion
  • Cash flow increase
  • Asset purchase
  • Rent expenses

Types of Unsecured loans for Businesses

Term Loan

This form of loan is only available for a certain time and must be repaid within that frame of time.

Working capital loan

This type of loan is available to run the day-to-day activities of a business. It is influenced by the credit history of the business owner and the revenue capacity of the business itself.

Overdraft

An overdraft can be a credit limit. The interest rate is only charged on the amount used or provided by the finance provider.

Business credit cards

Business owners can take business loans against their business credit cards. The loan amount is provided in the credit account by a finance provider and can be used to fund the day-to-day financial requirements of the business.

What are the criteria for unsecured business loans?

Credit

Finance providers often request a business owner’s personal credit. Since qualifying for an unsecured business loan is affected by credit score, having a good score can be important to your business. It increases your chances.

Cash flow and income

Due to the nature of the loan, financial providers only give unsecured business loans to businesses with steady flow in revenue. This gives a sort of assurance that the business can cater for its loans.

Age of business

Even though unsecured business loans look the most viable for start-ups or new businesses, they often face difficulty getting this type of loan. Most vendors tend to provide fund to companies existing for at least 2 years.

Current debt

Your credit score may be damaged if there is any history of a bad debt or unpaid debt. This in turn affects qualifying for an unsecured business loan.

Frequently Asked Questions

Please note that the interest rate is usually high due to the risk involved. Depending on the finance provider involved, the interest rate may be as high as 12% and above.

The amount you qualify to borrow in an unsecured business loan depends on your credit history. Only you can and the financial provider can agree on that

The loan term of an unsecured business loan vary from short term to medium-term, depending on your business needs.  Therefore the period of repayment is usually 12 month to 5 years.

The interest rate under an unsecured business loan is relatively higher than other finance options. This is because there is no collateral involved.

Disclaimer: We only offer general knowledge and recommendations. We do not guarantee that our judgements or suggestions will work best for you or your business. So, consider what you need when adopting any suggestion.