5 Benefits of Unsecured Loans for Businesses
Looking for funding to grow your business to the next level? An unsecured loan is a good option for most businesses that are past the startup phase. Unsecured means the lender is willing to make the loan without asking you to put up your home or equipment as collateral.
Instead, lenders base their unsecured loan decisions on several factors that may include your credit score, the length of time you’ve been in business, and your annual business revenues. Explore the following five primary reasons that unsecured loans make a popular choice for businesses.
No Need to Tie Up Assets
Borrowing against your home, vehicles, or business equipment can be an effective way for a startup to borrow money, but this type of borrowing is also an enormous risk.
Existing businesses with proven revenues and credit histories don’t always want to take that extra risk or tie up their assets to borrow operating capital.
Faster Lending
A secured loan can take weeks to process because the lender must first appraise the value of the collateral property and then verify that you haven’t already pledged the property to secure another loan.
Both elements combine with verifying your revenues and checking your credit score. An unsecured lender only has to verify your income and credit worthiness, which means you can often have funds in your hands within days of applying.
Having Your Changing Needs Met
Many unsecured loans are open-ended revolving loans, which offer businesses the flexibility they need to be responsive to demand. A line of credit from an online lending company such as Kabbage, for example, acts almost like a credit card.
You can borrow up to your limit when you need cash to fulfill orders and then repay what you borrow when you have cash. In other words, you don’t have to pay interest when you’re not using the funds, but the extra cash will be available when you need it.
Funds Without Restrictions
Secured loans are often tied to the collateral they finance, such as the purchase of real estate or a specific piece of equipment. Unsecured loans give business owners free rein to use the money for any legitimate business expense.
That freedom can be vital in a rapidly changing business environment where business owners need the freedom to dispose of assets to change course as needed.
Flexible Repayment
Traditional loans usually have a rigid repayment schedule, and missing a single payment during a lean business cycle can start a downward spiral into a nightmare of late fees and collection activity.
Repaying a line of credit is much more open-ended. Interest will accrue continually, but unless your line of credit gets revoked, you can take as long as you need to pay off the loan.
If your business has a track record of bringing in revenue but no assets to pledge for working capital, you may need to consider an unsecured loan.
An unsecured loan may also be the best option for businesses that need access to cash sporadically to process large orders or finance growth spurts.
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Category: Business Debt
