If you’re a business owner and want to grow your company quickly, then a business loan is likely an option that has crossed your mind. However, not all loans are created equal.
The type of loan you choose will have different benefits and drawbacks for your particular business situation. As such, understanding the differences between these types of loans – secured versus unsecured business loans – can help you make an informed decision about what’s suitable for you and your company.
Introduction to Unsecured Business Loans
An unsecured business loan is the type of loan that does not require collateral. They are perfect for small business owners looking to start a new business, grow an existing business, or purchase equipment for their business.
The process for obtaining this kind of loan is more transparent than applying for a secured loan. An unsecured loan is better for a small business because you can use it for virtually any purpose you want. Besides, you won’t have to open up your books for the bank and prove that your business is stable.
What Are the Benefits?
The primary benefit of an unsecured business loan is that they provide you with a flexible repayment schedule, depending on your financial situation.
This type of financing allows a business to purchase equipment, make improvements to facilities or expand. Besides, you can use it to buy inventory, pay employees, and finance seasonal expenses.
How Much Can You Borrow?
An unsecured business loan is a popular way to get funds for your business without offering collateral. However, the amount of money you can borrow is limited by many factors like the borrower’s credit history, the length of your business, the amount of risk that lenders perceive you to be, and such.
But the borrowers can expect to receive an unsecured business loan starting at $5,000. The average borrower can expect to borrow between $3,000 and $100,000. And the average monthly payment for these loans is around $750 per month.
It’s also important to know that an unsecured business loan can have an annual percentage rate as high as 36%, which is significantly higher than most home loans and car loans. As a result, even if you get approved for a certain amount, it might not be enough to do what you want.
Where Can You Get an Unsecured Business Loan?
Business loan companies have become more aware of the importance of unsecured business loans in recent years. Hence, today, most banks and other financial institutions offer business loans with no security required.
This is a big change from the situation a decade ago when an unsecured business loan was almost impossible to get. The reason for this is that banks want people who need business loans to be able to access them and grow their businesses.
The type of business you own or run matters less than your history as a responsible borrower, so if you’re a contractor or sole trader with a good credit score and debt-to-income ratio, you should be able to get a business loan.
An unsecured business loan is a great way to help you achieve your goals and grow your business. So, whether you’re starting a new venture or expanding an existing one, these loans can be the key that unlocks opportunities for growth and expansion. But, just make sure when you are applying for a loan, you know how much interest will be charged and what repayment terms the lender has set up.
Alison Lurie is a farmer of words in the field of creativity. She is an experienced independent content writer with a demonstrated history of working in the writing and editing industry. She is a multi-niche content chef who loves cooking new things.