What Is An Unsecured Business Loan and How Does It Work?

Creditworthiness is calculated using a few pieces of information. Lenders look first at credit scores as an indication of how you handle money. The higher the credit score, the more likely you will be able to manage finances well enough for the bank to lend you more. If your credit score is low, you may still qualify for funds, but you will probably get less than you ask for and be charged a higher interest rate. As a business owner, the higher your credit score, the more likely you are to qualify for funds through unsecured business loans. What is the benefit of having such a loan, and are there any other options?


Secured Loans


Secured business loans may be offered if your credit is fair to moderate. The bank assumes no risk in this type of loan because the money is backed by collateral you put up. This might be collateral in the business, such as equipment and commercial real estate. If you do not have enough business collateral, you may put up personal property to get the loan. Secured loans have a big drawback, however. The amount you may borrow is based purely on the then-assessed value of the collateral being used. If your business location is in an area of town that is projected to grow, but as of yet hasn’t, the bank will only lend you the amount the property is worth rather than the expected amount. This might limit the money at your disposal.


Unsecured Loans


Unsecured business loans are one option banks offer to individuals with stellar credit. These loans are not backed by any collateral. They are done at significant risk to the bank, and as such, they are not always easy to obtain. If you have a solid business that is profitable, doesn’t hold too much debt in addition to your own personal high credit score, a bank will likely offer you an unsecured loan. The most significant benefit of this type of loan is the amount available is not contingent on the assessed value of the property. This equals a higher chance of getting the full amount of money you need for your venture.


When looking at secured versus unsecured business loans, the choice may not entirely be up to you. If you happen to qualify for it, an unsecured loan may be the best option for your burgeoning business. There is no risk for you, the repayment plan is generally feasible and the interest rate very reasonable or even lower. Being able to manage your business and personal finances well may have far-reaching consequences for your borrowing abilities.

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