Unsecured Small Business Loan Case Study

Unsecured Small Business Loan Case Study

Unsecured Small Business Loan Case Study

Today we will be looking at a specific example of using an unsecured small business loan. The example is based loosely on real events in order to give you a bit of real world perspective in how and when to use loans of this type. The "cheapest" type of loan you can typically get, in terms of interest and fees, is a loan that is secured by a solid asset, such as real estate and with the borrower having perfect or near perfect credit. This is not always possible however, sometimes its necessary to get funding more rapidly, and this can sometimes be a good investment.

In this case a company involved in marketing products online was in need of additional funding. A marketing campaign had suddenly grown in scope, but the sales were coming in very quickly as well. Payment for the sales takes 30 days to get locked in, and the advertising cost was running $100/day over budget. So they would need to get a loan of some type. Since they didn't have any assets to back up the loan, a secured loan was not an option. Also, they would run out of money from their budget in a matter of days, so venture capital was not possible.

So how should they go about capturing these profits, if they won't have the money to pay for the advertising until payment is received? They opted to try to obtain an unsecured small business loan. Since this was a new business they had not been in business over 2 years, this put them in a certain category of available loans. Furthermore, they do not have established business credit. Like many sole proprietors they have been running their business DBA (doing business as) under their own name and using their own credit. This again had an effect on the loans available.

Finally, as they had a limited amount of total revenue, they could only borrow so much. After discussing the situation with a loan officer at a non traditional lender they were able to borrow enough money to cover the amount of extra expense for the month. The loan was given with double digit interest with repayment expected within 90 days. However given the circumstances this was a very good choice for them, as their per sale profit was roughly 100% of their costs to acquire marketing leads. Interest rate is important but is by no means the only factor in deciding whether or not to seek out a loan.

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