Top 5 Things You Should Know Before You Apply for an Unsecured Business Loan
Unsecured business finance is fast and easy, with far less documentation to go through than other lending options. It’s suitable for businesses of all sizes and allows you to avoid putting your home, vehicles, and other assets on the line. However, all these benefits come with some costs. It’s important to understand what you’re getting yourself into before applying for unsecured business finance. With this in mind, here are the five most critical things you need to know:
1. What is meant by “unsecured”?
The first thing you need to understand is the “unsecured” part of the term. This simple word makes unsecured business finance vastly different from the alternatives. “Unsecured” means you won’t need to supply any personal or business assets as collateral for the business loan.
Of course, this doesn’t mean lenders are going to finance anyone and everyone. You will need to have an excellent credit rating, a demonstrably stable financial history, and a very clear cash flow forecast if you want any hope of securing an unsecured loan.
2. The Risk is Higher For The Lender
Since no collateral has been put down, the risk for the lender is higher. For this reason, you will likely find that the interest rate you are charged for an unsecured business loan is higher than a financing option that involves some form of collateral. However, in most cases, it will also be lower than other unsecured forms of credit, such as personal loans and credit cards.
3. There are Repercussions if You Default
Though there’s no asset for the lender to immediately seize, it’s important to understand that they can still go after any assets you may have if you default on the loan. Debt collectors are also commonly deployed in default situations, and borrowers can be pushed to the point of bankruptcy.
Defaulting will have a negative impact on your credit rating, so it’s important to only go ahead with an unsecured loan application if you’re confident you can comfortably make the repayments.
4. The Devil is in The Details
To have come this far in your business, you surely understand the importance of reading the fine print before signing anything. It will serve you well to bring this attitude into your appraisal of unsecured business finance opportunities.
In addition to getting yourself the best possible interest rate and a loan amount that will cover all your needs, examining the details can give you a lot of benefits while helping you avoid painful pitfalls. For example, it’s important to check whether you will be charged a fee for things like paying out the loan early. Checking these details will allow you to position yourself to get the maximum benefit from your unsecured loan, with no nasty surprises down the road.
5. Unsecured Loans Come in Many Forms
Depending on your circumstances and personal preferences, you may be able to apply for:
- A personal loan
- A term loan
- A business line of credit
- A merchant cash advance
- An SBA (Small Business Loan)
Taking some time to research all these options will stand you in good stead for getting a financing arrangement that works for you and your specific business needs.
Though the term “unsecured” can seem a little daunting, there are many benefits to be gained from unsecured business finance. The trick is to understand what you’re committing to, what advantages and difficulties are involved, and what options you have. Keep researching, and don’t hesitate to seek professional financial advice if you’re uncertain about which loan option is best for you.
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