If you’re just starting or growing your business, an unsecured loan can provide much-needed funds to cover startup costs or make a major purchase. However, it is important to remember that these types of business loans tend to have higher interest rates than secured ones.
Interest rates, fees and other costs differ between lenders. It’s essential to compare business loans in order to find the one that meets your needs best.
Unsecured business loans are an ideal solution for businesses without assets to use as collateral. They provide businesses with a quick way to access cash for startup expenses like inventory and advertising costs.
Lenders often seek to minimize risk by requiring businesses to pledge collateral or sign a personal guarantee. Doing so protects them in case the borrower cannot repay their loan.
Alternative lenders provide unsecured business loans without the need for collateral. These loans tend to be quicker and simpler to acquire than traditional bank loans.
A strong credit profile can open up more unsecured small-business financing options for you. However, if your credit is poor, you may need to consider secured term loans from alternative lenders or cosigned business credit cards as alternatives.
Before applying for an unsecured business loan, make sure you possess all necessary information to successfully complete the application process. This includes a business plan and financial data sheets such as profit/loss statements and cash flow forecasts.
Unsecured business loans don’t need collateral, making them a great option for new businesses or those with limited assets. Furthermore, these loans help reduce the likelihood of having your assets seized if you default on payments.
Unsecured loan fees tend to be higher than those associated with secured loans. Lenders usually charge fees for underwriting, late payment, prepayment, credit draw and monthly maintenance.
Some lenders charge origination fees, which cover the expense of processing your application. These costs can range anywhere from a few hundred to several thousand dollars.
Unsecured business loans are usually term loans, which means you receive the full amount when accepting the loan and then make regular payments over an agreed-upon term until it’s fully repaid. They’re great for startup costs such as equipment, inventory or office space.
3. Interest rates
An unsecured business loan can be the ideal solution for small businesses and startups that don’t have enough cash to cover the initial costs of starting or expanding operations. Unlike secured loans, an unsecured business loan does not require your assets to be pledged as collateral.
Interest rates are calculated based on the amount you borrow, term length and credit score. Since these factors can differ, it’s essential to shop around for the best deal available.
Traditional banks usually qualify borrowers based on personal and business credit scores, annual revenue, profitability and more. But in recent times, online financial institutions have started awarding business loans to startups and smaller companies as well.
National banks still make the majority of loans, but local and regional lending institutions like credit unions are often more successful at helping businesses and startups secure financing. Furthermore, many of these organizations offer smaller loans at lower interest rates than larger banks do.
4. Time to repay
The time it takes to repay an unsecured business loan depends on several factors, such as the lender, creditworthiness of the business and specifics of the deal. Unsecured loans tend to be most suitable for companies with strong credit ratings and consistent cash flow. Therefore, it’s wise to shop around and do your due diligence before making a final decision.
Find the ideal business loan for your startup needs by comparing offers available from several lenders on a single platform, like National. Their network of over 75 lenders allows customers to quickly identify the ideal loan solution tailored towards their startup requirements. Plus, their award-winning customer service team will guide you through each step of the application process and offer guidance as needed. Furthermore, National’s innovative technology solutions are designed to boost efficiency so you can focus on what matters most: running your business efficiently. Whether searching for a small business loan, line of credit or commercial mortgage, National has got your financing solution.