Advantages and Disadvantages of Unsecured Business Loans


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One of the first things taught in business school is how to acquire a suitable business loan. A corporation requires a business loan either to expand its production capabilities or start a new venture. In case of unsecured business loans, it’s a loan from the lending party without any sort of collateral requirement by the business or business owner.

If you are doing a business that its important that you know the type of loan suitable for your business. Since, while doing a business you are bound to face some obstacles and these would mostly be regarding financial issues. So, that is where loans come in and save the business from financial stress and provide it an opportunity to expand and succeed.

Advantages and Disadvantages of Unsecured Business Loans
Advantages and Disadvantages of Unsecured Business Loans

Now, getting a loan isn’t as easy as just walking up to someone and asking him to help you. No, nobody is that nice or that foolish. To get a business loan, you need to go through a series of steps and formalities. There are many types of business loans available for the business to choose from, but let us focus only on unsecured business loans today. Like everything else, there are a series of pros and cons attached to such loans which is why you need to know everything about them and make a detailed situation that will help you and have very few strings attached.

 The following are the advantages and disadvantages of unsecured business loans.

Advantages of Acquiring an Unsecured Business Loan 

  • No Collateral

In many forms of lending agreements, the lender asks for collateral. Any asset such as houses, cars, property and so on counts as collateral. You give the lender your assets and in return, they give you the loan. The asset acts as a promise that your loan will be returned. In case that doesn’t happen, your asset is seized forever. This is a very smart move as it is a win-win situation for the lender and they end up with money in any case.

So, advantage number one of an unsecured business loan is that they don’t ask you for collateral. This means that your assets are safe and with you forever. This doesn’t mean that you are free to not payback. No, that is not how it works. You will still have to pay back in time whether as a complete payment or in installments but you will have the pleasure of knowing that your assets are safe which will be a relief for you.

  • Easy Application Process

Moving down the list of advantages of unsecured business loans, we come to the application process. Some applications are very simple and straight forward and all you have to do is check ‘’Yes’’ to some questions and ‘’No’’ to some others. Hence in those cases, the application process is easy and doesn’t require much proof or guarantee.

While on the other hand, some applications are much difficult to process through. They include tough questions, documental proof and so on. This isn’t the easiest thing to do. To get some documents, you need to wait in lines, talk to a bunch of people and turn the whole upside down. This isn’t always feasible to do and sometimes you just don’t have much time to complete such hectic processes and checklists of documents. Unsecured business loans have very simple application processes with a few to the point questions, a signature here and there and that is it. So, in case of extremely urgent matters where you need to acquire a loan as soon as possible, you should go with unsecured business loans.

Disadvantages of Acquiring an Unsecured Business Loan 

  • Personal Guarantee

Remember when I said that just because you won’t have to give collateral, that doesn’t mean that you are off the hook? Well, let us talk about that in more detail. Normally, when your business isn’t able to pay back the loan, they just seize your assets and that’s the end of that. However, without collateral, you are giving the lenders a personal guarantee. This means that you are giving them your word that you will pay back the loan. This may seem easier than collateral but if the loan isn’t returned then this is very dangerous for you. In such cases, because the lenders will have your own words against you, it will be you who would be held responsible and taken down to the court and filed a lawsuit against. Naturally, you don’t want that and this is the biggest reason unsecured loans are avoided by some people.

  • Difficult to Inquire

The lenders aren’t taking anything from you as collateral. This means that the lender will want to know everything about your bank statement so they can access your financial situation whether you will be able to repay the loan in the given time. This means, in simpler words, that to acquire an unsecured business loan you are going to have positive bank statements and good credit history. You need to prove the lending party that you are financially stable and can pay back the loan. For example, you have to show proof of your stable income and clean credit history. This is what makes the loan hard to get. Not every business has a positive bank account balance to repay the loan on time hence they are unable to convince the lenders that they will easily repay the loan. You need to be able to give them something to make them believe in you. After all, you cannot blame them. They too are just doing their job.

Conclusion

In business, one tiny mistake can cause you a lot of money. A deal went wrong perhaps or a contract that wasn’t supported, you get the idea. You need to be one step ahead and be prepared for everything that could go wrong. You have to do complete research and before asking the lender for the unsecured business loan. Moreover, you have to make calculated decisions and weigh all the pros and cons of acquiring an unsecured business loan. and be a pro at your game. Check if you have a stable credit history if you have enough time to repay the loan and whether your business is making enough money so that you can repay your loan. All these things need to be taken into account. Access your situation closely before making any commitments to anybody because you cannot expect to back out of such a deal. Take your time and have a thorough research about the choice you make. Because in the end, your business will bear the brunt of the decision.


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Frank Malone