The Advantages & Disadvantages of Unsecured Business Loans
When talking about business loans, many people first thing about having to put up collateral. This is mostly the case when borrowing a significant sum, causing borrowers to worry that their assets might put at risk.
However, some loans do not require any type of collateral at all. These are called unsecured loans. If you’d like to learn more about what they are and whether or not they’re right for your needs, you can read further down to the sections below.
What are unsecured business loans?
Simply put, an unsecured business loan is a type of loan that does not require any collateral. However, note that the lender might ask you to give you information about your business, mostly related to finances. This will give the lender a fair idea of how you are financially and decide whether or not you are suitable for an unsecured business loan.
On the other hand, a secured business loan requires collateral, which can be almost any type of asset.
What are the advantages and disadvantages of unsecured loans?
There are pros and cons to everything, unsecured loans included.
Unsecured business loans, as mentioned previously, do not require any collateral. This means that you do not need to put your assets at stake to receive the amount you need to borrow.
Another advantage is that because no assets are put up as collateral, you are given the freedom to make any changes to your assets. If you want to upgrade or sell your assets, for instance, you can do so more easily.
Finally, unsecured loans indicate that you and the lender have built a certain level of trust with each other and are now solidifying that as a financial obligation.
Unsecured business loans are much riskier for the lender. For this reason, the interest rates for such loans are typically higher. This means that if you are opting for unsecured business loans for long-term use, this might not be a good idea.
Additionally, unsecured business loans are far more difficult to acquire than secured loans. This can be because the lender will scrutinize you more thoroughly, following strict criteria that you must be able to meet.
Finally, there are many reasons your application for an unsecured business loan can be denied. For example, if you have had a history of bad credit, this can stop you in your tracks for unsecured loans. If you had no credit history at all, this could bar you from unsecured loans, too.
To conclude, unsecured business loans are perfect for those who have a great history with money borrowing and need to secure a loan that does not require any assets to act as collateral.
That said, you should always ask yourself whether an unsecured loan is the best option. After all, there are pros and cons to the prospect. Make sure that the benefits far outweigh the costs. That way, you can make the most out of your unsecured business loan, helping your business to grow faster and reach your intended goals.
Need help choosing the right business loans in Melbourne? Our team at Business Loan Experts can assist – we’ll help you select and plan your loans carefully!