If you’re looking to take out a business loan for your small business, then you might be trying to differentiate between the various different types of loan available to you. One of the most common problems is deciding between a secured and an unsecured business loan. When financing a start-up or small business, many new business owners sometimes feel that the funding they need is unobtainable if they don’t have the collateral to secure it. This is where unsecured business loans come in.
In general, small businesses take out loans in the hope of using borrowed capital to become more profitable. As well as to purchase inventory and to increase working capital, there are many reasons why small businesses take out loans.
The differences between secured and unsecured loans are many, and it’s essential for business owners to know the nuances of each type before making a decision. Here, we’ll look at six reasons why taking out an unsecured business loan is a better choice for your small business than its secured counterpart.
If your small business doesn’t have any valuable assets to offer lenders as collateral, it’s likely that you will be ineligible for most secured business financing. With an unsecured loan however, you don’t have to offer up business or personal property as collateral for your borrowings.
Fewer upfront costs
As a result of no legal and valuation costs, the upfront costs of an unsecured loan for your small business is typically lower.
No risk to personal or business assets
A secured business loan is protected with specific assets which allows the lender to take control of these assets if you are no longer able to pay what you owe. With an unsecured business loan, there is no risk to these assets since they are not needed as collateral.
Easier loan application process
With secured loans, lenders need to conduct external reviews to evaluate the collateral. With unsecured loans, however, this is not necessary. As the lending process is controlled by the lender themselves, the application process for unsecured business loans is often faster and easier.
Free up your assets
As an unsecured loan doesn’t rely on using your assets as collateral, you are free to sell or replace them without seeking any prior permission from the lender. With a secured loan, once a bank has a mortgage over your property, you won’t be able to sell or replace it without getting the lender involved.
Wider range of products and providers
As a result of the loan process for unsecured small business loans being easier, more providers are willing to offer them. This means a wider range of products and providers for you to choose from.
How to get an unsecured business loan
These are just some of the reasons why taking out an unsecured business loan for your small business might be a better option than a secured loan. Taking on debt is a risk so it is important to do your research beforehand so that you know exactly what you are getting into. However, with an unsecured business loan, this risk is substantially minimized which is ideal for those small businesses who are still weighing up the positives and negatives of borrowing money.