Types of Unsecured Business Loans
There are three main types of unsecured business loans. Which one you choose depends on your particular needs and circumstances. Within the three kinds, there are a number of variables between different lenders so make sure to carefully check which kind of unsecured loan from which kind of lender would suit you best.
This is the most common form of unsecured small business loan and the term is generally between one and five years. These loans tend to be larger in size and are used for major investments in a business, for example to buy new equipment or for company expansion.
Short-Term loans are more often used by businesses that are facing issues with cash flow or for other temporary needs such as buying more stock to fulfil unexpected demand. They are generally taken out over between six months and two years and repayments may need to be made weekly instead of the more usual monthly arrangement.
Merchant Cash Advance
With a merchant cash advance, the lender is effectively buying a part of a business’s projected revenue and pays for it with a cash lump sum. Repayment amounts can fluctuate along with income and in some cases they are paid directly from a merchant account to the lender either on a weekly or monthly basis.
Common Unsecured Business Loan Misconceptions
There are a number of myths and misconceptions regarding small business loans that are taken out with no collateral being provided as security. Here are three of the most common ones.
Unsecured Business Loans Mean No Liability
Just because a business hasn’t put up any definite security to support their loan it does not mean that defaulting on the loan will involve no liability. There is still the legal requirement to make the payments as promised.
Unsecured Business Loans Protect the Borrower
While the lender is not protected by having collateral in place this doesn’t, therefore, mean that the borrower is protected. If the latter fails to keep up with the payments as agreed there will almost certainly be consequences.
Unsecured Business Loans are Fully Unsecured
Most lenders, even for unsecured small business loans, will still need a personal guarantee from at least one of the people running the company that the loan will be repaid as agreed. It is possible to refuse to provide a personal guarantee but this will greatly reduce the likelihood of the loan being granted at the best rate, if at all.
Small Business Loans Unsecured by Collateral
Just because small business loans are unsecured by collateral it doesn’t necessarily mean that they will not represent good value. In fact, the best small business loans of this kind can sometimes be just as competitive as secured alternatives. It is a question of thoroughly searching the many options available for the best one to suit the borrowers needs and circumstances. Repayment amounts can be further adjusted by changing the loan term and interest rates can be lowered for applicants with particularly good credit scores. Most lenders are very up-front with their requirements for applicants which can be a great help when it comes to making the right choice and decision.
Unsecured Loans for Bad Credit
It might be easy to assume that unsecured loans for bad credit histories would be few and far between. After all, it could be expected that lenders would want at least some kind of security to offset what could be a credit risk. While it’s true that the choice of lender for unsecured business loans will be more limited when there’s a bad credit history, some will be prepared to consider applications. The loan, if it’s granted, will probably be at a higher than average interest rate and other conditions might apply. But many businesses would consider these to be compromises worth making to obtain the loan.
Unsecured business loans help a great many businesses to either thrive or to make it through periods when cash flow issues may affect them. With the flexibility to take them out over either the long or the short term, and therefore tailor repayments to suit, they can be very affordable too. For many businesses there is the added appeal of not having to put up any collateral for the loan, although personal guarantees may be needed. So it’s well worth searching around for the best unsecured loans from the many lenders who provide them and who help millions of businesses every year.