subject: Understanding an Unsecured Small Business Loan: Can It Help Your Business? [print this page] Understanding an Unsecured Small Business Loan: Can It Help Your Business?
Today we will discuss the different types of unsecured small business loan and their components. Hopefully after reading over this you will understand what it means to get an unsecured small business loan and what to consider before doing so.
First of all, An unsecured small business loan is unsecured because there is no assett backing the loan directly. Of course like all loans the lender has legal recourse to seek damages in court and the courts may decide that some of your assets can be seized, but this is a lengthy process with no guarantees.
With a secured loan, there is some object that is backing the loan in case of default. If you do not make your loan payments as agreed, the lender has the legal right to repossess the item and sell it to repay the loan. Two common examples of this are foreclosures of home loans or repossession of vehicles for a vehicle loan. Unsecured loans don't have this direct backing.
The unique thing about an unsecured small business loan, as opposed to one not specially designed for small businesses is that there are special resources available to your small business. One such resource is the Small Business Administration. They can assist you in setting up your business plan, looking for appropriate lenders and even go over the loan contract to explain what it is you are agreeing to. Definitely a great resource for new and established small businesses.
Now that we understand the terminology and how it applies to the loan, we should discuss possible good and bad uses for a loan of this type. These can be somewhat more costly than secured loans as they represent a higher risk to the lender. If you don't have a lot of business assets than you should try to get an unsecured loan in all likelihood. You could use your personal finances, but if things go wrong you don't want to lose your shirt along with your business.
You should never get involved in a business that you can't get away from. Also, if you don't have a clear plan for how the loan will help you, you shouldn't get it. Just saying, I need more money, is not good enough. How do you plan to turn the loan into future profits for your company? If you don't know how you'll repay the loan, and how it will benefit you, don't get it. You need to work out a better strategy first.
