People who own or manage a business may need loans for various reasons, from expanding operations to paying for monthly rents. Loans are a great source of additional financing when cash is not readily available, and the need is urgent.
There are two types of loans available to business owners. First is the secured business loan, which is tied to collateral. The collateral can be a vehicle, equipment, building, or anything of value that can be handed over to the lender if the loan could not be repaid.
Then there are unsecured business loans, which is the topic of this article. Unlike the secured loan, this type of loan does not need collateral. It offers several benefits, some of which are discussed below.
Faster Application Process
All lenders want to make sure that debts are repaid on time and in full. That is why they spend much time and effort reviewing the credentials of every applicant.
For unsecured loans, this includes evaluating the value of the collateral offered, which complicates the application process. The lender needs to put in more time and effort to examine the asset so a fair value could be assigned.
This is not a problem for unsecured business loans. Without collateral to worry about, lenders can focus on the other parts of the application, such as evaluating an applicant’s business performance or viability through the monthly sales and credit reports.
This simplified process results in faster loan approvals. There are cases where a decision is made 24 hours after the submission of the loan application.
There is No Risk of Your Asset Being Seized
Most business owners who turn to loans could not afford to lose their assets. This is especially true for startups. It is important for these types of businesses to pursue unsecured loans first to ensure that no personal assets would be taken away in case the debt is not repaid.
But still, they must make sure that the loan is settled even if it is unsecured and there is no collateral involved. This will help ensure that their credit score remains high and that they are safe from possible legal actions.
Unsecured Loans Can Be Discharged in Case of Bankruptcy
All business owners pursue loans with the intent to repay them. Still, it would be smart to have a plan in place in case a debt could not be settled. Unsecured loans can be beneficial in this regard.
Unsecured business loans have the possibility of being discharged by the court in case a company files for bankruptcy. This will release the borrower from the legal obligation of paying it back, which is important in cases where the business fails to generate income.
In general, it is more difficult to qualify for unsecured loans compared to secured loans. This is understandable as the lenders assume higher risk and tend to be more discerning of who to approve for a loan.
Checking the business plan, financial statements, cash flow reports, and credit score are some ways that will help minimize the risk for the lender. If you plan on applying for a loan, you must make sure that you have these requirements ready.
Another thing to consider is that unsecured loans have higher interest rates. Also, the loan amounts approved are usually smaller.
Still, if you need money for your business and you need it fast, it is a great option to look into.Email This Post