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| Is an Unsecured Small Business Loan Right for You? |
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In the world of small business finance, one type of loan that you will come across when shopping for financing is an unsecured small business loan. For business owners with decent credit ratings, this is by far the most common type of business loan that is used. Is an unsecured loan right for your business, or would you be better off with a secured small business loan or even a new small business credit card?
Before you can answer that question, you need to know what an unsecured small business loan is. First, these types of loans do not have any collateral behind them. In other words, you do not guarantee anything of value in return for the loan. If you do not pay back the loan, the bank cannot automatically foreclose on your property or take anything else of value to your business.
Second, a true unsecured business loan is one that does not require your personal guarantee. This means that the loan is assigned to your business, not you as an individual borrower. This is an important distinction, because using personal loans for small business finance needs could put your personal credit score and financial stability at risk.
Because there is no collateral backing this type of small business credit loan, you will have to have a decent credit rating to qualify for his type of loan. This is because the loan approval is based almost entirely on your credit rating. If you have a poor credit rating, you may find that secured loans or bad credit business credit cards are a better option for you. It is hard to get approved for an unsecured business loan with bad credit.
Another way to apply for this type of loan is to apply through the small business loan administration. This government agency will back a portion of your loan. Instead of putting up collateral to offset the risk of your loan, you will have the government's guarantee that if you should fail to repay the loan, the lender would still be paid. These business loans are available through lenders who choose to work with the SBA.
If you have a good business or personal credit rating, you will probably be able to find a lender who is willing to give you an unsecured business loan. Keep in mind that this type of loan typically carries a slightly higher interest rate than secured loans or SBA backed small business loans. This is because the risk is always higher with an unsecured loan, even if you have a great credit rating. However, the difference in interest rates is not huge, so this is rarely a problem for business owners. Often they feel that it is worth the higher interest to not have to place valuable assets up for collateral against a loan.
If you are a small business owner with a decent business credit rating, you can likely find a way to apply for business loans that do not require collateral or your personal guarantee. An unsecured small business loan may be the financial tool you are looking for to help your business thrive.
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