Reasons Why to Get an Unsecured Small Business Loan

Reasons Why to Get an Unsecured Small Business Loan

If you have a small business which is in need of funding for some future business need. Perhaps you are expanding into new offices or you wish to increase the productivity of your company by buying new equipment, etc. then perhaps you should get a loan. Alternatively you could apply for a business line of credit. Lines of credit are designed more for a generic need to have funds available. If you have specific business plans to make specific purchases or upgrades, you most likely will want a loan instead. But what type of loan should you get and when should you get an unsecured small business loan versus a secured loan.

There are really two factors in getting an unsecured small business loan or a secured loan. The first of which is the interest which is applied to the loan. Although this is not set and differs from lending institutions to lending institution typically you will pay a slightly lower interest rate for secured loans. This is because a secured loan has some type of collateral which backs it. Some example of secured loans would be the purchase of new real estate or a company vehicle. That is because both of these loans would be backed directly by the asset. So if the loan is not paid as agreed, they can reclaim their property. This makes it a lower risk for lenders. Unsecured loans on the other hand do not have any collateral and so they must rely on your businesses history and credit score to determine if you are likely to repay the loan or not.

The second factor in whether or not to get an unsecured small business loan or a secured business loan is the risk reward to you. If you have collateral available to secure a loan it does not necessarily mean you should use this collateral for that purpose. Remember that if you are unable to repay the loan back, the collateral you used will be seized by the lender. It may not be a good idea to put up your personal property as collateral. You should always have a plan to back out of your business ventures if need be. Remember if you start a corporation and it fails for whatever reason, you want to be able to start a new company someday. Also if you do not have any collateral to point out then you have no choice but to get an unsecured loan for your business.

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