Unsecured business loans may be a good option for businesses that don’t have assets to put up as collateral or have a bad credit score. Though these loans are easy to apply and less risky for applicants, they come with some disadvantages too. Let’s discuss the pros and cons of unsecured business loans and who should choose them.
Pros of Unsecured Business Loans
- Quick Application Process
You can apply for Unsecured business online and have essential criteria. Lenders must examine your business’s income, monthly sales, etc. As these are ready-to-review statements, lenders can quickly have a look and approve your loan request within a few hours. This helps ensure you receive the amount in your bank account within 24 hours of the application submission.
- No Collateral Required
Small businesses and start-ups may not have pricey business assets to put up as collateral. Unsecured business loans might be a good choice for them, as no collateral is required. However, your lender may review your business plans and market opportunities before approving your loan request. Sometimes, the lender may need a personal guarantee to approve the loan. The guarantee document may state that if you default on the loan, the lender will have the right to pursue your assets.
- Less Risk
As unsecured business loans are not protected with collateral (any specific assets), you don’t have the risk of losing them if you don’t pay back the loan amount. However, your lender may sue you for defaulting on the loan. In some cases, a lender can seize your personal property to account for the loss on the loan. However, courts may discharge the unsecured loan if you file for bankruptcy.
Cons of Unsecured Business Loans
- Higher Interest Rates
As unsecured business loans are not secured with assets, they are riskier for lenders if your business fails to repay them. So, lenders will typically charge a higher interest rate on unsecured loans.
- Difficult to Get Qualified
Before approving your loan request, the lenders must ensure you will repay the loan amount. So, to minimize their risk of losing the loan amount, they will carefully review some aspects of your business and your ability to repay the amount, including your annual income, financial statements, business credit, liquidity and cash flow projections.
- Smaller Loan Amounts
As unsecured loans are riskier for lenders, they usually only offer a little money. So, if you need a small amount for a short period, you can opt for unsecured loans.
Unsecured Business Loans Can Still Be a Feasible Option
Though unsecured business loans have some demerits, they might be a good option for businesses seeking immediate financial assistance, even with poor credit and no collateral. However, when choosing the right loan option for your business, you should evaluate the merits and demerits and examine whether or not the merits outplay the demerits. For example, if you need a small amount, can meet the eligibility criteria and are okay with paying higher interest rates, you may want to consider applying for unsecured business loans.
Need Help Getting Unsecured Business Loans? Contact Economic Development Collaborative Today!
At Economic Development Collaborative, we offer business loans for businesses across Santa Barbara and Ventura Counties. Contact us today to learn more about our loan programs for businesses and how they can help you thrive in your business.