Businesses often utilize credit products such as business loans, for various reasons. In the past few years, unsecured business loans, or business loans with no collaterals are seeing a steady growth in demand across many markets. Even through the tougher times, many unsecured business loan offerings witnessed a rise in demand. Today, we discuss the top pros and cons – or the benefits and limitations – that such business loans feature, so that if you’re planning to apply for a business loan, you have a better understanding of these aspects.
What is an Unsecured Business Loan?
An unsecured business loan is a business credit offer in which a loan amount is given to the borrowing business without the pledging of a valued collateral or asset. In such a loan, should there be a situation where the business is unable to repay the loan, the lender does not have the right to seize any business assets from the borrowing business. Loans from alternative business lenders are typically unsecured loans.
The Pros
1. No Need for Identifying and Evaluating Assets
When you apply for a traditional business loan that requires your business to pledge an asset, one of the first things you may need to do is, to identify suitable and valuable assets and determine their value along with suitable evidence to support the claim. Apart from being a time-taking task, there can be situations where this also costs money.
2. Limited Risks
With no valued assets being pledged, a loan has limited risks. If you’re unable to repay an unsecured business loan, a lender may have to wait for your business to be in a position to make repayments or, in a more extreme situation, would have to use legal procedures which can provide you more time and reasonable options of repayment.
Of course, by not pledging assets, you don’t end up losing any, should you be unable to repay.
3. Ease of Application and Qualification
Alternate business lenders offering loans have easier loan application processes and they keep simpler qualification requirements.
4. Quicker Loan Processing
The loan process is often simpler when you deal with an alternative business lender. Apart from simpler application and qualification, this is also the case. To add to this, eliminating a process of asset selection and evaluation makes the entire loan process a quick and simple one.
The Cons
1. Higher Interest Rates
Unsecured business loans are considered higher risk loans. With higher risk being associated, come higher fees and rates of interest, making such loans more expensive at an average.
2. Limited Loan Tenures
Most unsecured business loans would have tenures limited to a year or two. Secured business loans tend to offer longer repayment tenures.
3. Limited Loan Amounts
If you’re seeking a large business loan (i.e. above $2M), it’s highly unlikely that such a loan would be unsecured. Unless your business is expected to be listed in the Fortune 500 soon!
Benefits of an unsecured business loan
An unsecured business loan offers several benefits for businesses. But, it’s important to note that these loans come with higher interest rates compared to secured loans. Here are some advantages of opting for an unsecured business loan:
- No Collateral Required: One of the primary benefits is that you don’t need to provide any collateral to secure the loan. This is helpful for businesses that may not have valuable assets to pledge or are hesitant to put assets at risk.
- Faster Approval Process: Since there’s no need for the lender to evaluate and appraise collateral, the approval process for unsecured business loans is often quicker. This can be crucial for businesses that need immediate funding to seize opportunities or address urgent financial needs.
- Less Risk to Assets: With no collateral at stake, your business assets are not on the line. If you face challenges repaying the loan, the lender cannot seize specific assets to recover the debt. This can be especially important for small businesses that may not have a substantial asset base.
- Flexibility in Use: Unsecured business loans generally provide more flexibility in how you can use the funds. Whether it’s for working capital, expansion, inventory purchase, marketing, or any other business-related expense, you have the freedom to allocate the funds based on your business needs.
- Accessibility for Startups and Small Businesses: Startups and small businesses that may not have significant assets to use as collateral can benefit from unsecured loans. This accessibility allows newer or smaller enterprises to secure financing for growth and development.
Despite these advantages, it’s important to consider the potential downsides, such as higher interest rates and stricter eligibility criteria, when opting for an unsecured business loan. It’s crucial to carefully assess your business’s financial situation and repayment capabilities before taking on any form of debt.
Apply Online for an Unsecured Business Loan
We at Business Advance Lenders take pride in being a renowned name amongst the alternative business lenders. Our services are fully available online and with us, you can get an unsecured business loan that’s easy to apply for and quick to get approved and disbursed. You can simply provide us your contact details filling in the form on this page or hit the “Apply Now” button and our team shall soon be in touch with you, working on a loan to suit the needs of your business.