My Business Credit Lines

Unsecured Business Loans Explained

Starting a small business can be a daunting task. It is full of risks, but also potential rewards. Starting at ground zero without any consistent cash flow can be overwhelming. It takes time for businesses to generate revenue and stabilize. There again, there is no guarantee that a business will generate profits or even make a name for itself. Businesses should be familiar with secured and unsecured business loans.

 

A secured loan is pledged against an asset, which can be sold to cover the borrower’s defaults. An unsecured loan is a monetary loan that is not backed by any security or asset. The significant difference between a secured loan and unsecured loan is that the latter does not require any collateral and a borrower is only charged interest on the amount the borrower borrows.

 

There are several different types of unsecured business loans, which include the following:

 

  • Personal Loans
  • Credit Cards
  • Payday Loans
  • Corporate Bonds

 

Interest rates vary depending upon the history of the borrower and the lender’s terms.

 

The interest rates on unsecured loans are generally higher than secured loans because there is no collateral to collect if the borrower defaults. The higher interest rates reflect the additional risk factors involved for lenders.

 

When applying for unsecured loans, businesses need to make sure their credit report is in good standing. They also need to promote a strong, well-organized business plan. This dramatically helps increase the chances of obtaining a loan. Businesses need to always pay bills on time to help boost credit ratings. Even if a business does have a long-term loan, they should read the fine print to make sure there are no additional hidden fees if the loan is paid off early.

 

Unsecured business loans are easier for businesses to obtain. Additionally, since they do not require collateral, in many cases businesses do not have to offer their properties or assets as collateral. This means that if a company files for bankruptcy, the court may decide to discharge any unsecured loans. This is not the case for secured loans, which courts do not discharge. However, businesses should note that defaulting on any type of loan, albeit it a secured or unsecured loan, will affect a business’ credit rating. Some lenders do offer partially secured loans, which are secured with collateral, but do not require the full amount of the borrowed debt.

 

References:

http://www.sba.com/funding-a-business/unsecured-business-loans/

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My Business Credit Lines has over 500 Business Lenders around the United States that offer different types of business funding. We do all of the searching for you so you can have access to lenders in your area all in one place. Any of the lenders will be able to help get you the credit line you need to get your small business off on the right track to success.

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