An unsecured loan is defined as a loan that is issued and supported only by the borrower’s creditworthiness instead of any type of collateral. Interested borrowers can get the money without presenting any property to secure the loan. It can be called as signature loan or a personal loan. Normally, lending companies require borrowers to have high credit ratings to be approved for certain unsecured loans.
Starting a business can be taunting and stressful especially if the capital is not enough. If that is the case, third-party financing like business loan is needed. Most businesses are being recommended to get unsecured business loans because there is no collateral needed.
Money lending companies that offer unsecured business loans would not require potential borrowers to pledge any collateral to obtain the loan. However, keep in mind that income and credit requirement should be met. Unsecured business loans can range from $5,000 to more than $500,000 but it will depend on the size of the business and its credit rating.
Here are the reasons why an unsecured business loan is good for starting a business:
Offers flexible program
Money lending companies offer flexible programs for business owners that will fit their needs. Unlike banks, they require properties for collateral. Borrowers only need capital to start the business and unsecured business lending companies can provide this without buying a piece of property to secure such loan.
Builds good rapport and business relationship
Business people always need to have a lender on their side especially during the financial constraint. In business, a solid relationship with a money lender will always make it easier to obtain financing if needed. Business people are often granted loans because of strong ties with the lender or the business itself has a good reputation and strong financial position. In order to work on a good relationship, borrowers should handle properly their unsecured debt.
Higher amount of loan
Secured loans only offer limited funding and it will be assessed by percentage of value of the assets used to secure it. Compared to unsecured business loan, it does not have limitation, resulting to higher amount of loan. It is also worth noting that it is funded faster because unsecured business funding skips this appraisal step, unlike the secured loan that requires an appraisal of the assets used to secure the funding. Lending companies that offer unsecured business loan guarantees that borrowers can get the money within 72 hours upon application. Usually, it requires less paperwork, less documentation, and causes fewer headaches than secured business funding.
No collateral needed
The first and the biggest advantage of an unsecured loan is that the borrower is not required to present any collateral compared to secured loans. Traditional money lenders such as bank, they would ask the borrower to submit place of business as collateral for the loan. Unsecured business loans are obtained on the ground of credit without collateral and lenders rely mainly on the credit rating of a person then decide whether or not that person is eligible for the loan. This is the reason why borrowers’ properties are safe.
Less time consuming
Unlike secured loan, unsecured loans will not check any collateral or property. Lenders will not go through the process of determining the collateral value against the loan. In result, borrowers can get their money within just 2-3 working days, given that the loan gets approved.