If you are starting your own business but lack capital, you have a number of options to secure financing. You can reach out to friends and family and come up with terms that may or may not involve equity. You can also try to look out for investors who may be interested in supporting your business idea. However, a more conventional route would be to take out a business loan.
Business loans can be secured or unsecured, with the former consisting of collateral and the latter not having any. Rather than pledging collateral, you can apply for an unsecured loan based on your creditworthiness, financial standing, and business model. Aside from the fact that you do not need collaterals, there are also other advantages to getting unsecured business loans.
If you are thinking of what type of loan you should get, unsecured loans may be beneficial to you, especially if you are new to the business industry. Still, it will be best to understand all your financing options before making a big decision.
If you have ever tried taking out a business loan, then you will know that the process can be extremely tedious and time-consuming. You have to supply a ton of information and wait for a long time for your application to be processed since financial institutions want to make sure that you can repay your loans.
Since unsecured business loans do not require collateral, you can cut out the time it takes for your lender to examine the value of your collateral. With that, your lender can focus on more pertinent information like the state of your business and your sales.
The application process may also be quicker since alternative lenders, rather than traditional lenders, typically give out unsecured loans. Overall, the streamlined process of the application was designed to process and give out loans much faster. If you need the financing immediately, unsecured loans will be a good option to take.
A secured business loan would require you to provide some form of property, which your lender can have control over in case you cannot repay your debt. An unsecured business loan, on the contrary, does not come with an asset or security. As a result, there is a minimum risk involved since there is no danger of losing your assets.
Another advantage of getting unsecured business loans is that you tend to have more flexibility with your payment options. Depending on your lender, you may be given many alternatives as to how you want to structure your loan. For example, some may provide you with repayment options ranging from months to years.
Other lenders may also give you options on what will happen if you cannot pay. Typically, unsecured loan lenders will ask you for a personal guarantee as a form of accepting responsibility if you cannot repay your debt. Some arrangements, however, require no personal guarantee and instead require you to reach a specific quota for your revenue within a particular time.
Unsecured loans are becoming more popular because of their advantages. Studies from credit-reporting firms show that a small percentage of business people who took out unsecured loans went back for a second loan within days. However, like any other financing decision you have to make, it will be best to assess your options and needs to see the best choice you can make.